Were Hedge Funds Right About NVIDIA Corporation (NVDA)?

In this article we will check out the progression of hedge fund sentiment towards NVIDIA Corporation (NASDAQ:NVDA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

NVIDIA Corporation (NASDAQ:NVDA) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. NVIDIA Corporation (NASDAQ:NVDA) was in 92 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 95. Our calculations also showed that NVDA currently ranks 27th among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a look at the new hedge fund action surrounding NVIDIA Corporation (NASDAQ:NVDA).

What have hedge funds been doing with NVIDIA Corporation (NASDAQ:NVDA)?

At the end of June, a total of 92 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in NVDA over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, GQG Partners was the largest shareholder of NVIDIA Corporation (NASDAQ:NVDA), with a stake worth $1785.8 million reported as of the end of September. Trailing GQG Partners was Citadel Investment Group, which amassed a stake valued at $1315.4 million. Fisher Asset Management, D E Shaw, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position AlphaOne Capital Partners allocated the biggest weight to NVIDIA Corporation (NASDAQ:NVDA), around 11.46% of its 13F portfolio. Symmetry Peak Management is also relatively very bullish on the stock, earmarking 8.26 percent of its 13F equity portfolio to NVDA.

Since NVIDIA Corporation (NASDAQ:NVDA) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few money managers that elected to cut their entire stakes heading into Q3. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising close to $51.5 million in stock, and Josh Resnick’s Jericho Capital Asset Management was right behind this move, as the fund dumped about $48.8 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NVIDIA Corporation (NASDAQ:NVDA) but similarly valued. These stocks are Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), Adobe Inc. (NASDAQ:ADBE), Bank of America Corporation (NYSE:BAC), Paypal Holdings Inc (NASDAQ:PYPL), The Walt Disney Company (NYSE:DIS), and Tesla Inc. (NASDAQ:TSLA). This group of stocks’ market values are closest to NVDA’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 90.3 hedge funds with bullish positions and the average amount invested in these stocks was $8919 million. That figure was $5548 million in NVDA’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 57 bullish hedge fund positions. NVIDIA Corporation (NASDAQ:NVDA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVDA is 51.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on NVDA as the stock returned 45.5% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.