Wall Street hunts for more AI gold after Nvidia’s soaring rally
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[March 01, 2024] 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
by Nvidia sparks a search for other companies that are capitalizing on
the technology.
Shares of Nvidia - whose chips are the gold standard in the AI industry
- are up about 60% this year after tripling in 2023. The run has pushed
its market value to roughly $2 trillion, making it the third-largest
U.S. company by market cap after Microsoft and Apple.
It has also spurred Wall Street to search for other AI-focused companies
in hopes of catching outsized moves. Whether investors are looking at
the broader chip industry or betting on firms elsewhere in the value
chain, they agree on one thing: AI is here to stay.
“It's not a fad," said Francisco Bido, senior portfolio manager for F/m
Investments' Large Cap Focused Fund. "There are too many ... cases where
companies can make really good use of the technology to enhance both
their top and bottom lines.”
Excitement over AI helped power the Nasdaq Composite Index to a record
high on Thursday, while the S&P 500 also marked its latest record. The
indexes are both up about 7% this year.
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Further signs of the growing fixation on AI have been easy to spot.
Mentions of AI on conference calls reached a new high in the fourth
quarter, Goldman Sachs said recently. The bank’s analysts have estimated
artificial intelligence technology could add 1.5 percentage points to
U.S. productivity growth if there is widespread adoption over the next
decade.
A Morgan Stanley survey of chief information officers suggests 2024 is
"a Year of Investment for 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 holding in Nvidia, but has branched out into
other AI plays, 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.
Those stocks have risen sharply, although less dramatically, than Nvidia
and some other AI plays that have recently captured the market's
attention. AMD shares are up 30% year-to-date, for example, while
Mongo’s have risen 9%, though the shares of both companies doubled last
year.
By contrast, shares of server component supplier Super Micro Computer
and chip designer ARM Holding have jumped about 200% and 90%,
respectively, in 2024. SMCI's shares tripled in 2023.
Ivana Delevska, founder and chief investment officer of Spear Invest,
said Nvidia has remained the biggest holding 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 take advantage of data infrastructure demands.
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![](../images/030124PIX/busine76.jpg)
NVIDIA logo is seen near computer motherboard in this illustration
taken January 8, 2024. REUTERS/Dado Ruvic/Illustration/File Photo
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Of course, the risks of playing the often-volatile stocks of
AI-related companies remain despite the technology’s higher profile.
Shares of Snowflake, for example, fell 18% on Thursday after the
company projected annual revenue below Wall Street estimates and
disclosed the unexpected retirement its CEO.
Baker Avenue Wealth Management trimmed its Nvidia holding as the
stock has climbed so that it does not occupy too large a position in
client portfolios, said King Lip, the firm’s chief strategist.
But the firm recently started building a position in Taiwan
Semiconductor, a key supplier to Nvidia.
"If you still want artificial intelligence exposure but are perhaps
a little skittish about Nvidia’s stock price, I think Taiwan Semi is
kind of a no brainer,” Lip said.
Que Nguyen, chief investment officer of equities at Research
Affiliates, is looking for reasonably valued semiconductor companies
that could stand to benefit from AI. Among them are Lam Research
Corp, which supplies equipment to the semiconductor industry, and
Micron Technology, which makes memory chips and data storage.
Lam Research shares are up about 20% so far this year, while Micron
is up 6%.
“Large language models are not just processing, you need to have
storage,” Nguyen said.
Of course, many investors are happy sticking with big Nvidia
positions.
The Martin Currie US Unconstrained Fund has nearly 10% of its assets
- the maximum the fund allows for one stock - in Nvidia, said
portfolio manager Zehrid Osmani. He believes the company will
maintain competitive advantages as it spends more heavily than
rivals on research and development.
"We have high conviction in the name, and that's expressed through
high position size," 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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