Nvidia Stock Skyrockets as Investors Flock to AI – What’s Ahead For The Company?

Nvidia has been one of the hottest stocks on Wall Street, with shares up by a staggering 60% already in 2024 after tripling last year.This incredible rally has pushed Nvidia's market valuation to around $2 trillion, making it the 3rd largest U.S. company after Microsoft and Apple.

Driving these monumental gains is Nvidia's dominance in artificial intelligence semiconductors. The company's graphics processing units (GPUs) are the undisputed gold standard when it comes to AI processing.

As AI continues its rapid adoption across industries, demand for Nvidia's chips has soared.

Investors Bet Big on Finding the Next AI Goldmine

Nvidia's meteoric rise has shone a spotlight on the AI sector, spurring investors to hunt for the next potential goldmine.Whether looking at semiconductor firms like Nvidia or other parts of the AI ecosystem, there is a rush to find stocks levered to this transformative technology.

As Francisco Bido of F/m Investments put it,

It's not a fad. There are too many compelling use cases where AI can significantly improve top and bottom lines.

The seismic shift AI represents has been reflected in the major indexes, too. The Nasdaq and S&P 500 have charged to fresh highs in 2024 amid the enthusiasm. Moreover, AI is dominating the conversation on company earnings calls.

Goldman Sachs analysts estimate that widespread AI adoption over the next decade could potentially boost productivity growth in the U.S. by 1.5 percentage points.

With AI now the number 1 priority for many chief information officers this year, the AI train seems poised to keep accelerating. While remaining heavily allocated to Nvidia, money managers are diversifying their AI bets across the sector.Advanced Micro Devices, Nvidia's chief rival in graphics chips, has surged 33% year-to-date.

MongoDB, whose databases are critical AI infrastructure, has risen 9%. More parabolic moves have been seen in stocks like Super Micro Computer, a supplier of servers for AI applications, up a whopping 212% already in 2024.And ARM Holding, a semiconductor designer owned by Nvidia, has leaped 92%.

Some investors are also buying cybersecurity firms like Zscaler to play the rising data protection needs stemming from AI. Of course, the risks of chasing these richly-valued stocks were shown when software vendor Snowflake plunged 18% in one day on weak guidance.

But the hunger persists for attractively-priced semiconductor stocks like Lam Research and Micron Technology that could benefit from swelling AI demand.

Trimming Nvidia Exposure While Staying Invested in AI

Given Nvidia's massive run-up, some investors are cutting their positions so that it does not become too outsized in portfolios.However, they still want AI exposure, so they are buying Nvidia suppliers like Taiwan Semiconductor as a lower-risk option levered to AI growth.

Other managers simply want broad semiconductor exposure through reasonably valued chipmakers carrying AI tailwinds. Top picks include Lam Research, Micron Technology, Applied Materials, Analog Devices, and Intel. Despite its stretched valuation, the conviction remains unshakeable for some investors in Nvidia's stock.

The Martin Currie US Unconstrained Fund has nearly 10% of assets in Nvidia, the maximum allowed.Portfolio manager Zehrid Osmani believes Nvidia will maintain its technology lead through superior R&D investment.

With Nvidia at the epicenter of the AI transformation, some investment managers are comfortable with huge bets on the company.

They see Nvidia's early mover advantage in AI giving it a commanding market share over the long term.

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