Investors Regret Owning Very Few Nvidia Shares Following A Whopping 230% Rally

Investors of Nvidia Corp's shares are bubbling with excitement this season as the firm's stock spiked. However, a few fund managers who thought the stock expensive regret their decision to buy a few.

According to a Reuters report, the CEO at Horizon Investment Services, Chuck Carlson,said, One stock is not going to make or break us, but it certainly doesn't help if you don't own it and the stock triples,"

Notably, the concerns about the sustainability of the increasing demand for chips and the evolution and progress of AI-based technology prevented some funds from diving into Nvidia stock.

But even with the concerns, a strategist at Morningstar, Robby Greengold, believes It was a costly error of omission for funds that held an underweight to it."

Nvidia Shares Rallied More Than Three Times Amid AI Boom

Nvidia's shares haverecordedover three times increase in value this year. The rally was sparked by the growing interest and acceptance of artificial intelligence (AI) in different sectors of the global economy.

Artificial intelligence emerged as the most popular and profitable investment niche in 2023. This sudden growth aided the huge rally in AI stocks, with Nvidia among the top beneficiaries of the frenzy.

Surprisingly, Nvidia emerged as the best-performing S&P 500 index stock in 2023, with a YTD of more than 230%. Its performance came with a wide margin to the second-best-performer, Meta Platforms, which saw a 143% spike.

Source:Nasdaq - Barchart for Nvidia (NVDA)

Despite the thrilling records for the year for most indices, Nvidia's performance has distinguished it from others in 2023. As reported byReuters, Nvidia and six other mega-capped stocks constituted up to 73% of the cumulative return of the S&P 500 in 2023 as of Tuesday this week.

The other giant firms include Microsoft (MSFT.O), Apple (AAPL.O), Alphabet (GOOGL.O), Meta Platforms (META.O), Tesla (TSLA.O), and Amazon (AMZN.O). Though the seven giant companies outperformed the S&P 500 in 2023, Nvidia singly represented 14.9% of the index return on Tuesday.

Funds Left Out on The Massive Nvidia Shares Rally

Among the approximate 330 mutual funds benchmarked to the S&P 500, just 15% held an above-index weight in NVDA. Also, the 85% of funds that held a below-average weight in Nvidia have underperformed the index current within the year.

The basic reason that scared off some investors is the valuation of Nvidia. Moreover, some were cautious about purchasing the stock following its massive 230% run this year.

Nvidia stock is trading at around 33.6 times above 12 months earnings estimate compared to less than 24X for the Nasdaq 100.

But even at that, a prominent firm with $250 million in assets under management, Horizon, has played down its stance on Nvidia. It ranks Nvidia at the lowest level of its investment stocks in terms of valuation and doesn't recommend the stock to its customers.

A CEO at Tallbacken Capital Advisors, Michael Purves, seemingly supports Horizon's stance as he recommends that the client holds a bearish short-term options position in Nvidia to hedge against a potential market downturn.

According to Purves, the stock's rally was very fast, and a 20-25% correction is possible shortly.

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