1. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Funds Investors: 193
Aswath Damodaran, NYU Stern School of Business professor of finance, said before NVIDIA Corp’s (NASDAQ:NVDA) latest earnings report that the company will beat Wall Street estimates and still “disappoint” investors amid high expectations.
“I valued them about $90 before the election, before the market downturn. They were trading at 108 then, and today they’re trading at 128. So, in terms of perspective, even with the beating they’ve taken in the last few weeks, the stock is still $20 higher than it was in September of 2024. At that time, I said the stock is a great company, but I don’t see how you can get to $120 or $130 per share still. I think that’s still what I said then, and it still holds. They don’t have the capacity in terms of generating earnings and cash flows to sustain a $3 trillion market cap. I think that still stands. As the earnings report comes out tomorrow, my expectation is it’s going to be a lot like September, a replay of September, where they will beat analyst expectations, but the market’s going to be disappointed because the market seems to have set expectations higher than what analysts are seeing for the company.”
The market will keep punishing Nvidia for not coming up to its gigantic (and sometimes unrealistic) growth expectations. About 50% of the company’s revenue comes from large cloud providers, which are rethinking their plans amid the DeepSeek launch and looking for low-cost chips. Nvidia’s Q1 guidance shows a 9.4% QoQ revenue growth, down from the previous 12% QoQ growth. Its adjusted margin is expected to be down substantially as well to 71%. The market does not like when Nvidia fails to post a strong quarterly beat. The stock will remain under pressure in the coming quarters when the company will report unimpressive growth.
Nvidia is facing challenges at several levels. Competition is one of them. Major competitors like Apple, Qualcomm, and AMD are vying for TSMC’s 3nm capacity, which could limit Nvidia’s access to these chips. Why? Because Nvidia also uses TSMC’s 3nm process nodes. Nvidia is also facing direct competition from other giants that are deciding to make their own chips. Amazon, with its Trainium2 AI chips, offers alternatives. Trainium2 chips could provide cost savings and superior computational power, which could shift AI workloads away from Nvidia’s offerings. Apple is reportedly working with Broadcom to develop an AI server processor. Intel is also trying hard to get back into the game with Jaguar Shores GPU process, set to be produced on its 18A or 14A node.
Brown Advisors Global Leaders Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“The main driver of our 2024 relative underperformance was not being invested in NVIDIA Corporation (NASDAQ:NVDA). Since ChatGPT introduced the power of generative artificial intelligence to the world on 30 November 2022, the Global Leaders Strategy has outperformed its benchmark despite being underweight the USA and specifically underweight the “Magnificent Seven”.7 2024 underperformance of -2.81% versus our benchmark was almost precisely matched by the individual outperformance of NVIDIA, which we did not own. On balance the rest of the portfolio is doing just fine albeit with areas of strength (AI) and weakness (EM financials) discussed below.
We wrote about the concentration within global indexes last year and this continued with only 29% of companies within the ACWI Index at the start of 2024 outperforming this benchmark over the year. Our capital allocation added value in 2024 as five of our top ten largest weights over the year were also in our top ten percentage winners. Conversely, within our ten worst performers, seven were also amongst our smallest ten weights. Capital allocation is critical when index hit rates are below 50%…” (Click here to read the full text)
While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA), our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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