ETFs
NVIDIA’s Explosive Profits: Should You Buy Stocks or ETFs Now? – May 28, 2024
NVIDIA (NVDA – Free report) announced exceptional results for the first quarter of fiscal 2025, exceeding all expectations. Revenue from its data centers soared 427% year-over-year to $22.6 billion, fueled by rapid adoption of AI technologies.
Microsoft (MSFT – Free report), Amazon (AMZN) and the alphabet (GOOGLE – Free report) accounted for approximately 45% of the company’s data center revenue.
Investors applauded CEO Jensen Huang’s comments regarding their latest chip, Blackwell. “We’ll see a lot of Blackwell revenue this year.” NVIDIA will release new chips on an annual cycle.
The stock will begin trading on an adjusted basis when the market opens on June 10. The split does not change the underlying value of the company but may make it more attractive to retail investors. Additionally, it could be included in the price-weighted Dow after the split.
NVIDIA currently controls more than 80% of the market for cutting-edge chips used to train and run large language models. Tech giants as well as AI startups have been frantically acquiring as many NVIDIA chips as possible.
The chipmaker is seen as a major beneficiary of funding for Elon Musk’s artificial intelligence startup, which raised $6 billion in its latest funding round on Sunday.
Although NVIDIA’s GPUs are unmatched for training AI models, chips from other companies like (INTC – Free report) and AMD (AMD – Free report) can be used for inference once the models are trained.
NVIDIA also appears to have a dominant position in the inference market, but it could face competition in the coming years. Additionally, big tech companies are designing their own chips, which could reduce their reliance on NVIDIA.
However, what really sets NVIDIA apart from its peers is its AI ecosystem, which includes its CUDA software and networking technology. Additionally, the company has access to a significant portion of TSMC’s business (TSM – Free report) advanced manufacturing capabilities, and competitors may struggle to obtain similar allocations.
Thanks to increasing demand for its AI chips, NVIDIA shares are up more than 120% this year, following a rise of nearly 240% in 2023. Its valuation does not appear excessive, however, as profits grow faster than its share price.
NVIDIA’s meteoric rise has attracted some investors to single-stock ETFs that aim to double their daily returns. The GraniteShares 2x Long NVDA Daily ETF (NVDL – Free report) has approximately $2.4 billion in assets, and the T-Rex 2X Long NVIDIA Daily Target ETF (NVDX – Free report) raised approximately $411 million.
I believe these instruments can be used effectively as short-term tactical trading tools before or after earnings. However, investors should remember that these products are not intended for buy-and-hold investing and should only be used by those who closely monitor their portfolios.
Chip ETFs, like the VanEck Vectors Semiconductor ETF (SMH – Free report) and the iShares Semiconductor ETF (SOXX – Free report), as well as AI ETFs such as the Global X Robotics & Artificial Intelligence ETF (BOTZ – Free report) and the iShares Robotics and Artificial Intelligence multi-sector ETF (IRBO – Free report) , are well positioned to benefit from the continued AI boom.
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