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Nvidia has been the most talked about company in the world this year.
There has been enormous excitement about the dizzying 161 percent rise in the American semiconductor giant’s shares since January and corresponding concern about the recent price drop.
Could Nvidia be a bubble waiting to burst? Or was this just a blip in the progress of this behemoth that, for a time earlier this month, was the most valuable company in the world, worth $3.34 trillion?
This Silicon Valley company controls 90 percent of the market for the “accelerator” microchips that are driving the industrial revolution of generative AI (artificial intelligence).
US investors have been pouring $8.7 billion into tech funds to gain exposure to the phenomenon and UK investors could follow suit.
Style: Nvidia boss Jensen Huang speaks at a technology fair in Taipei, Taiwan, earlier this month
It’s possible to buy a stake in Nvidia and other Silicon Valley companies through mutual funds whose shares are traded at a discount to their net asset value (NAV). This offers the opportunity to diversify, rather than betting on the fortunes of a single company. It’s also a way to get into Nvidia and other AI pioneers for less money.
Many investors will be skeptical, thinking that hopes for American technological exceptionalism are facing disappointment. They see this week’s decline in Nvidia stock as the precursor to further volatility. This is a reasonable assessment given that Nvidia shares have soared nearly 3,000 percent over the past five years.
They are 205 percent higher than a year ago, when this column highlighted the stock’s potential.
But 42 of the 66 analysts who follow Nvidia rate it a “buy.” No one recommends selling it.
Backing Nvidia today isn’t a one-way bet, though.
Daniel Ives of brokerage Wedbush Securities has compared Nvidia’s hyper-efficient chips, also known as GPUs (graphics processing units), to the “new gold or oil in the technology sector.” But like the price of gold or oil, Nvidia stock could rise higher or suffer a setback.
Nvidia has achieved a staggering 57 percent profit margin. But there is no guarantee that this can be sustained, despite the talent of Nvidia boss Jensen Huang.
You may already own Nvidia through funds and trusts such as Baillie Gifford US Growth, Blue Whale, F&C, JP Morgan Global Growth & Income and Monks. Alliance and Witan, which are set to merge, are also shareholders. But some lesser-known names are also backing the Nvidia supernova.
Allianz Technology
The trust’s discount of £1.49m (now 6%) is narrowing rapidly because Nvidia accounts for 9% of the portfolio. Other holdings include Apple, Meta (owner of Facebook, Instagram and Whatsapp) and Microsoft. This trust is one of my rewarding adventures with AI.
Canadian General Investments
The £757m trust’s biggest holding is Nvidia, although the portfolio also includes the Canadian Pacific Kansas City railway. Railways are benefiting from another key trend. Companies are “re-shoring” or bringing manufacturing in from overseas. The trust’s obscurity may explain its 41% discount.
Manchester and London
Shares in the £323m trust have soared 49 per cent this year, helped by its AI-focused portfolio. Nvidia accounts for 32 per cent.
However, it is at a discount of 15.5 percent. Mark Sheppard of Manchester & London has skin in the game: he owns 57 percent of the shares. This gives him a considerable incentive to reduce the discount.
Martin Currie Global Portfolio
This discount on this £255m trust is just 2.85 per cent. It offers exposure to Nvidia – which makes up 9 per cent of the fund – but also European stalwarts such as L’Oreal. This may be an option if you feel your portfolio contains too much technology.
Polar capital technology
Nvidia is the £3.9bn trust’s biggest holding (10 per cent). But it also owns Advanced Micro Devices, another key chip player, and TMSC, the Taiwanese maker of Nvidia’s chips. QuotedData, the research group, argues that this combination of AI beneficiaries and AI enablers could mean Polar outperforms its sector over the long term. The discount is 6.72 per cent.
Scottish mortgage
Nvidia is the largest holding in this £11.5bn FTSE 100-member trust whose discount has been reduced from 20 per cent last summer to 9 per cent.
The main reason for the size of this gap is concerns about the nature of the trust’s unlisted shares, which account for 30 percent of the portfolio.
Like other shareholders, I hope the heads of these companies are adopting Huang’s precept of “failing forward.”
If you take a risk and your first attempt fails, you continually adapt the idea, improving it more and more.