HomeBusinessAnalysis-Wall Street chases more AI gold after Nvidia's bullish rally

Analysis-Wall Street chases more AI gold after Nvidia’s bullish rally

By Lewis Krauskopf

NEW YORK (Reuters) – Money managers are scrambling to cash in on the stock market’s interest in artificial intelligence as a stunning rally from Nvidia sets off the search for other companies to capitalize on the technology.

Shares of Nvidia — whose chips are the gold standard in the AI ​​industry — are up about 60% this year, after tripling by 2023. This run has pushed its market value to about $2 trillion, making it the largest by market cap is the third largest American company. after Microsoft and Apple.

It has also prompted Wall Street to look to other AI-focused companies in hopes of making outrageous moves. Whether investors are looking at the broader chip industry or betting on companies elsewhere in the value chain, they agree on one thing: AI is here to stay.

“It’s not a fad,” says Francisco Bido, senior portfolio manager of F/m Investments’ Large Cap Focused Fund. “There are too many cases where companies can really make good use of technology across both their top and bottom lines.”

The excitement about AI helped the Nasdaq Composite Index to a record high on Thursday, while the S&P 500 also notched its latest record high. The indexes are both up about 7% this year.

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Other signs of the growing fixation on AI are easy to spot. AI mentions on conference calls hit a new high in the fourth quarter, Goldman Sachs said recently. The bank’s analysts estimate that artificial intelligence technology could add 1.5 percentage points to U.S. productivity growth if it were widely adopted over the next decade.

A Morgan Stanley survey of Chief Information Officers shows that 2024 is “a year of investment in AI,” the bank said in a note this week, with CIOs naming AI/machine learning as their top priority for the first time.

Bido’s fund retains a large stake in Nvidia but has expanded into other AI businesses, including rival chipmaker Advanced Micro Devices and MongoDB, whose database products could be in high demand as AI is poised to change data infrastructure needs .

These stocks have risen sharply, albeit less dramatically, than Nvidia and some other AI stocks that have captured the market’s attention recently. For example, AMD’s shares are up 30% this year, while Mongo’s are up 9%, even though both companies’ shares doubled last year.

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In contrast, shares of server components supplier Super Micro Computer and chip designer ARM Holding are up about 200% and 90%, respectively, through 2024. SMCI shares will triple in 2023.

Ivana Delevska, founder and chief investment officer of Spear Invest, said Nvidia has remained the largest stake in its Spear Alpha ETF. But the exchange-traded fund has also sought to capitalize on growing cybersecurity needs related to AI by owning shares of Zscaler, a cybersecurity specialist. The fund’s position in Snowflake, meanwhile, seeks to capitalize on demand for data infrastructure.

Of course, the risks of playing the often volatile stocks of AI-related companies remain, despite the technology’s higher profile. For example, shares of Snowflake fell 18% on Thursday after the company forecast annual revenue below Wall Street estimates and announced the unexpected retirement of its CEO.

Baker Avenue Wealth Management has trimmed its stake in Nvidia as the stock has risen so it doesn’t take up too much of a position in clients’ portfolios, said King Lip, the company’s chief strategist.

But the company recently started building a position in Taiwan Semiconductor, a key supplier to Nvidia.

“If you still want exposure to artificial intelligence but are perhaps a little skittish about Nvidia’s stock price, I think Taiwan Semi is a no-brainer,” Lip said.

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Que Nguyen, chief investment officer of equity at Research Affiliates, is looking for reasonably valued semiconductor companies that could benefit from AI. These include Lam Research Corp, which supplies equipment to the semiconductor industry, and Micron Technology, which makes memory chips and data storage.

Shares of Lam Research are up about 20% so far this year, while Micron is up 6%.

“Large language models are not just processing, you also need storage space,” says Nguyen.

Of course, many investors are happy to hold on to large Nvidia positions.

The Martin Currie US Unconstrained Fund has almost 10% of its assets – the maximum the fund allows for a single stock – in Nvidia, according to portfolio manager Zehrid Osmani. He believes the company will maintain competitive advantages because it spends more money on research and development than its competitors.

“We have a lot of confidence in the name, and that is reflected in the large positions,” Osmani said.

(Reporting by Lewis Krauskopf in New York; additional reporting by David Randall in New York; Editing by Ira Iosebashvili and Matthew Lewis)

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