Nvidia's Stock is Rising Again, but Investors Aren't Overly Optimistic

Nvidia Corp. has been a major player in the semiconductor industry and is highly regarded on Wall Street. However, despite the excitement surrounding the company, large institutional investors aren’t as bullish on Nvidia as one might expect. According to a recent report by BofA Global Research analyst Vivek Arya, Nvidia is the most widely held semiconductor stock among active fund managers, but it is still considered "relatively underweight" in many portfolios.

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Arya and his team conducted their quarterly analysis of semiconductor-stock ownership, examining the holdings of active managers. They found that while Nvidia has garnered a lot of attention and is a favorite among investors, its representation in many portfolios is lower than expected when compared to other large technology stocks. This contrasts with the popular narrative that Nvidia’s stock is so widely held that some investors might be forced to reduce their positions as the stock price rises, increasing risk exposure.

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Nvidia’s relative weighting is one of the key metrics used to measure how heavily it is owned in relation to its weighting in the S&P 500. Currently, Nvidia’s relative weighting stands at 0.99x, meaning that it is not as heavily favored as other technology companies. BofA analysts note that this relative weighting is “well below” that of the top 16 peers in the information technology and communication services sectors, despite Nvidia’s potential to grow its revenue at a pace five times faster than some of these other companies.

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Interestingly, Nvidia’s relative weighting has declined since BofA’s last analysis of semiconductor ownership, which took place three months ago. At the end of June, Nvidia’s relative weighting was 1.04x, showing that its ownership has fallen slightly. In contrast, other large technology companies, such as Meta Platforms, Salesforce, Microsoft, and Alphabet, have higher relative weightings. This means that these companies have a more substantial presence in portfolios than Nvidia, despite Nvidia’s impressive growth prospects.

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In the semiconductor sector itself, other names like Applied Materials, KLA Corp., and Micron Technology have higher relative weightings compared to Nvidia. Broadcom, another major semiconductor company, is also mentioned by BofA analysts as having a higher relative weighting on paper at 1.54x. However, when excluding Broadcom’s largest shareholder, its relative weighting drops significantly to just 0.7x. This highlights the fact that even the most heavily owned chip stocks, like Nvidia and Broadcom, are still considered relative underweights by institutional investors.

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Even though Nvidia is seen as relatively underweight compared to other major tech stocks, it remains one of the most widely owned semiconductor companies by the number of funds that hold it. According to the BofA analysis, about 70% of funds hold Nvidia in their portfolios. This puts Nvidia well ahead of Broadcom, which has around 52% ownership among funds, and Advanced Micro Devices (AMD), which is held by approximately 39% of funds.

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The analysis of semiconductor-stock ownership conducted by Arya and his team provides insight into how fund managers are positioning themselves within the sector. The findings suggest that while Nvidia remains a popular stock, it is not as overweight in portfolios as other large technology names. This might indicate that fund managers are cautious about overexposure to Nvidia, even with its strong growth prospects.

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Nvidia’s stock performance has seen some fluctuations recently. At the beginning of the week, Nvidia shares saw a modest gain on Monday but dropped by 3.7% during Tuesday’s trading session. However, the stock managed to recover in the following days, posting a 1.6% gain on Wednesday and rising another 2.8% by the end of Thursday’s trading day. Despite these short-term movements, Nvidia’s long-term growth prospects continue to attract interest from investors.

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In conclusion, Nvidia Corp. remains one of the most widely owned semiconductor stocks among active managers, but its relative weighting in portfolios is lower than expected. This could be due to fund managers exercising caution about the stock’s price growth and the potential risks associated with holding too much exposure to Nvidia. Other large tech names, such as Meta, Microsoft, and Alphabet, have higher relative weightings in funds, reflecting greater confidence in those stocks. Additionally, within the semiconductor sector, companies like Applied Materials, KLA, and Micron have more substantial representation in portfolios than Nvidia, although Nvidia still leads by the number of funds that own it.

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The BofA Global Research analysis provides valuable insights into how institutional investors are positioning themselves in the semiconductor industry. While Nvidia remains a top choice for many, its relative underweight status may suggest that fund managers are taking a more balanced approach, ensuring they are not overly concentrated in one high-growth name. As Nvidia continues to perform and demonstrate strong potential, it will be interesting to see if its relative weighting increases in future quarters.

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