U.S. stock index futures remained nearly flat in the early hours of Monday, just ahead of the discussions about raising the debt ceiling after a brief pause late last week, while shares of Micron Technology Inc fell following China's ban on its chips.
Nvidia Corp on Monday said it has worked with the U.K.'s University of Bristol to build a new supercomputer using a new Nvidia chip that would compete with Intel Corp and Advanced Micro Devices Inc.
Advanced Micro Devices' (NASDAQ: AMD) stock price has soared since it reached a two-year low last October. The semiconductor stock had lost around two-thirds of its value by then as the chip industry experienced a slump. It has since reversed course thanks to growing interest in
We’re through the bulk of the 2023 Q1 reporting cycle. So far, results have primarily been good enough to keep sentiment in check, with us avoiding the earnings ‘apocalypse’ many warned us of.
What happened
The 2023 artificial intelligence (AI) hype train cannot be stopped. Shares of leading semiconductor company Advanced Micro Devices (NASDAQ: AMD) popped as much as 12.6% this week, according to data from S&P Global Market Intelligence.
And just like that, shares of Nvidia Corporation (NASDAQ: NVDA) are back to within a good day's worth of trading from all-time highs. About 10% to be exact, a gap which we expect to continue narrowing in the sessions ahead. The past week alone has seen them jump 12%, including a
Advanced Micro Devices (AMD) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.
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Artificial intelligence (AI) is more advanced than ever and could have a tremendous impact on the world over the next decade. But AI doesn't seep out of the ground like oil. Instead, it requires enormous computing power because of how much data it must process quickly.
Perhaps no stock has captured the market’s imagination this year more than semiconductor giant Nvidia (
NASDAQ:NVDA
). After a challenging 2022, the stock that many perceive as the leader in
artificial intelligence (AI) technology is off to a
gain of over 120% so far this year, and it's only May.
As the world’s sixth-largest company by market cap, Nvidia is owned by many ETFs, particularly AI, tech, and semiconductor-focused ones, and these ETFs have also performed well.
This article will highlight five ETFs that have large positions in Nvidia, and these could be solid options for investors looking to gain exposure to the stock using ETFs. The upside of investing through an ETF is that investors can also gain exposure to Nvidia's peers and competitors that offer exposure to the same themes, like the rise of AI and the long-term growth of semiconductor demand.
Superinvestors are Flocking to Nvidia
Before delving into the ETFs, let’s take a brief look at the rise of Nvidia itself. The stock boasts an enviable
Smart Score of 9 out of 10. The Smart Score is TipRanks’ proprietary quantitative stock scoring system that evaluates stocks on eight different market factors. The result is data-driven and does not require any human intervention. A Smart Score of 8 or above is the equivalent of an Outperform rating.
Nvidia has surged this year on the back of excitement about its AI opportunity, but that hasn’t stopped some of the world’s top investors from piling in. According to recent filings, David Tepper of Appaloosa Management, Lee Ainslie’s Maverick Capital, and Chase Coleman’s Tiger Global all initiated new positions in Nvidia during the first quarter of 2023.
Stanley Druckenmiller, who reportedly generated annual returns of 30% for his investors for many years at Duquesne Capital and famously helped George Soros "break" the Bank of England by shorting the pound, also started a position in the company.
Druckenmiller’s involvement is interesting because he is currently less enthusiastic about the market in general. The legendary hedge fund manager believes we are in for a “hard landing.” Therefore, you would likely expect an investor like Druckenmiller to avoid a name like Nvidia that trades at over 60 times forward earnings, but Druckenmiller apparently isn’t dissuaded by Nvidia’s steep valuation multiple or the possibility of a looming recession.
Druckenmiller’s family office bought shares of AI leaders like Nvidia and Microsoft (
NASDAQ:MSFT
) during the first quarter, putting $220 million into Nvidia. In a recent discussion at the Sohn Conference, he said that he thinks AI is “very real” and that “it could be as impactful as the internet.” He also said that these stocks will present great opportunities coming out of a hard landing.
Druckenmiller says that even in the event of a recession, he doesn’t think Nvidia’s stock price will necessarily go down, even given the high valuation multiple.
These top investors appear unfazed by Nvidia’s valuation and its strong year-to-date performance. Therefore, here are five different ways to invest in Nvidia using ETFs.
1.
iShares Semiconductor ETF (NASDAQ:SOXX)
One simple and effective way to invest in Nvidia is through the SOXX ETF from iShares. Nvidia is the 800-pound gorilla in the chip space right now, so it is the top holding for this chip-focused ETF, with a weighting of 9.9%. Check out an overview of
SOXX’s top 10 holdings below, using TipRanks’ Holdings tool.
A benefit of investing in SOXX is that in addition to this exposure to Nvidia, you also get plenty of exposure to Nvidia's competitor, Advanced Micro Devices (
NASDAQ:AMD
), which is making its own inroads into AI.
SOXX has a reasonable expense ratio of 0.35%, and it has been a strong performer in recent years, outperforming the
S&P 500 and the
Nasdaq 100 with an annualized return of 30.7% over the past three years (as of the end of the first quarter).
SOXX has a weighted average P/E ratio of 20.1, meaning that it trades at a slight discount to the broader market (which trades at around 24x earnings). Note that SOXX also has a strong ETF Smart Score of 8 out of 10. With low fees, a reasonable valuation, a strong performance track record, and a large position in Nvidia, SOXX looks like an ideal choice for ETF investors who want to invest in Nvidia.
2.
VanEck Semiconductor ETF (NASDAQ:SMH)
Staying in the world of major semiconductor ETFs, VanEck's $7.5 billion SMH ETF also has Nvidia as its largest holding. In fact, it has even more exposure to Nvidia than SOXX does, with a 15.1% weighting. You can gain an overview of
SMH's top 10 holdings using the chart below.
As is the case with SOXX, SMH also gives you plenty of exposure to AMD as well as to semiconductor fabricators like Taiwan Semiconductor (
NYSE:TSM
) and equipment maker Lam Research (
NASDAQ:LRCX
), which are crucial semiconductor companies.
SMH has the exact same expense ratio as SOXX (0.35%), and that's likely no accident, as they are competing for the same types of investment dollars. SMH's weighted average P/E ratio is a bit higher than SOXX's at 22.8, and while its three-year return of 23.7% lags SOXX's spectacular 30.9% return over the same time frame, this is still an excellent return.
With a similarly modest fee, solid track record, reasonable valuation, and large weighting towards Nvidia, SMH looks like another great choice for investors looking for Nvidia exposure.
3.
Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)
While SOXX makes Nvidia its top holding due to its semiconductor investment universe, BOTZ is an AI-focused ETF from Global X that features Nvidia as its second-largest holding, with a 9.4% weighting. Nvidia trails only Intuitive Surgical (
NASDAQ:ISRG
), which has a 10.05% weighting. See below for an overview of
BOTZ’s top holdings.
In addition to Nvidia and Intuitive Surgical, BOTZ owns quite a few international stocks that are involved in AI, robotics, and automation that may not be familiar to most investors.
BOTZ is off to a nice 25.2% year-to-date gain. However, its three-year annualized return of 6.6% and its five-year annualized return of 2.0% lag those of SOXX, SMH, and the broader market. BOTZ also has an expense ratio that is nearly twice as high as SOXX’s, at 0.69%. Lastly, BOTZ’s weighted average P/E ratio is higher than SOXX’s or SMH's at 38.7 times earnings.
BOTZ stock has performed well this year, and it gives investors undiluted exposure to a lot of under-the-radar AI names. However, based on the aforementioned factors, SOXX and SMH appear to be better choices when it comes to Nvidia-related ETFs.
4.
Technology Select Sector SPDR Fund (NYSEARCA:XLK)
Thanks to the fact that Nvidia’s climb has made it one of the world’s largest and most valuable companies, you don’t really have to get too fancy to invest in it using ETFs. This large, tech-centric ETF from State Street with $43.6 billion in assets under management (AUM) is broader in its focus than SOXX or BOTZ, but it still features Nvidia fairly heavily. Nvidia is XLK’s third-largest holding, with a weighting of 4.7%. You’ll find an overview of
XLK’s top holdings below.
One thing to note is that while Nvidia is the third-largest position in XLK, it’s dwarfed by the likes of Microsoft and Apple (
NASDAQ:AAPL
), which have much larger weightings.
XLK has a very favorable expense ratio of just 0.10%. It also has a rock-solid performance track record, providing investors with annualized total returns of 19.2% over the past three years, 19.5% over the past five years, and 18.9% over the past decade (as of the end of the most recent quarter).
While XLK doesn’t have the largest Nvidia weighting on this list, it’s likely a good way to get exposure to the tech sector as a whole, and it’s hard to argue with its long track record of performance.
5.
Invesco QQQ Trust (NASDAQ:QQQ)
Last but not least, QQQ is a massive ETF with nearly $175 billion in AUM that invests in the Nasdaq 100. Because Nvidia is a major component of the Nasdaq 100, QQQ has a sizable Nvidia position of 5.5%.
QQQ is similar to XLK in that it holds larger positions in Microsoft and Apple, although they don’t dominate the fund to quite the same extent as they do in XLK, with weightings of 13.3% and 12.5%, respectively.
In the table above, you’ll notice that
QQQ’s top holdings have strong Smart Scores -- nine of the top 10 holdings have Smart Scores of 8 or better.
If you are interested in Nvidia for the AI angle, QQQ should appeal to you, as it also holds large positions in other AI leaders like Microsoft, Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
) and Meta Platforms (
NASDAQ:META
).
QQQ offers a modest expense ratio of 0.2%, and it has provided its investors with great returns over the years, posting annualized returns of 19.8% over the past three years, 15.7% over the past five, and 17.7% over the past 10.
For investors looking for Nvidia and a host of other AI leaders, this looks like a solid choice to go with.
Investor Takeaway
Nvidia has captured the attention of retail investors and renowned hedge fund managers alike, taking the market by storm with a gain of over 120% in 2023 so far.
For ETF investors interested in gaining exposure to this powerhouse, the five ETFs above offer different avenues for doing this. Of the five, my top choices would be SOXX or SMH. This is because of their large positions in Nvidia and the fact that Nvidia isn't overshadowed by much larger positions in Microsoft or Apple, as is the case with XLK and, to a lesser extent, QQQ.
I also like SOXX’s and SMH's performance track record, modest fees, valuations, and exposure to other semiconductor companies that could play a role in the AI revolution. SOXX has a slight edge over SMH in most of these categories, making it the winner by a narrow margin, but at the end of the day, both appear to be solid choices for investors looking to add Nvidia to their portfolios.
While SOXX looks like the top choice, XLK or QQQ are attractive based on their broad exposure to tech and other AI leaders in addition to Nvidia, their low fees, and their proven long-term track records. Of the two, I give a slight edge to QQQ just because it isn’t as beholden to just two names (Microsoft and Apple) as XLK is.
BOTZ is not a bad ETF, and it holds a host of interesting AI-related names that are hard to find elsewhere, but given its higher fees and less impressive long-term track record (compared to the other names), this would be my last pick of the five ETFs discussed here.
Disclosure
Shares in Nvdia Corp, Advanced Micro Devices and Micron Technology on Thursday provided the biggest boosts to the chip sector, which outperformed the broader market as investors looked for ways to invest in artificial intelligence and in Japan. Shares in chip design software company Synopsys shares ended up 8.7% after it forecast better-than-expected third-quarter profit estimates, saying increased use of AI and automation boosted its business.
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Advances in
artificial intelligence (AI) have captured the imagination of the market and the general public alike in 2023, so it’s no surprise that AI-focused ETFs are enjoying solid year-to-date gains. With just $13 million in assets under management (AUM), the
WisdomTree Artificial Intelligence and Innovation Fund (
BATS:WTAI)
could be a hidden gem among these funds. Here’s why there’s plenty to like about this tiny, under-the-radar ETF.
AI is Just Getting Started
WisdomTree writes that AI “is a transformative megatrend that has the potential to influence nearly all aspects of how we live and work globally in the years to come.”
And while AI offers plenty of long-term growth potential, it’s also being used in plenty of applications that are impacting our lives and businesses today -- whether it’s chatbots like
ChatGPT, self-driving technology in cars, industrial automation, or workflow automation software.
Legendary investor Stanley Druckenmiller, who reportedly returned 30% annually over a 30-year timeframe while running Dusquense Capital, recently said that AI could be “every bit as impactful as the internet.” He also said that while he believes we are in for a “hard landing” economically, AI leaders like Nvidia (
NASDAQ:NVDA
) and Microsoft (
NASDAQ:MSFT
) could be “unbelievable opportunities” coming out of a hard landing.
Further, he noted that even if there is a major recession, Nvidia's opportunity in AI is so compelling that he's not convinced that Nvidia’s share price will go down, even though it sports a high price-to-earnings multiple.
Thoughtful Diversification
WTAI offers investors a diversified and comprehensive way to gain exposure to AI. Not only does it hold 76 different stocks, but it’s also not overly concentrated toward its top positions like some other AI-themed ETFs. Its top 10 holdings make up just 22.6% of the fund, which means that investors aren’t left overly exposed to the ups and downs of a few large holdings. Top position Nvidia accounts for just a 3% weighting, which is reasonable.
Another thing I like about WTAI’s holdings is that it invests across a wide-ranging swath of today’s AI universe. WisdomTree says that the WTAI ETF "seeks to offer precise access to the AI megatrend through direct investment in publicly listed firms all over the globe that are focused on capitalizing on AI in a diverse array of technologies and applications.”
WTAI places its investment focus in AI across four key areas -- AI software, semiconductors, hardware (which would include the likes of autonomous vehicles, drones, robotics, and industrial automation), and what it calls “innovation,” an all-encompassing category that could include any company using AI to disrupt existing industries.
Below, you’ll find a snapshot of
WTAI’s top holdings using TipRanks’ holdings tool, which gives investors a comprehensive overview of an ETF’s top holdings and their characteristics.
Semiconductors are crucial for powering AI applications, and you’ll find plenty of leading semiconductor names here, like Nvidia, Taiwan’s Alchip Technologies, Advanced Micro Devices (
NASDAQ:AMD
), and Lattice Semiconductor (
NASDAQ:LSCC
).
Nvidia is a semiconductor leader when it comes to AI, with some sources estimating it has up to an 85% share of the GPU market, but don’t count out the likes of AMD, which Morgan Stanley (
NYSE:MS
) analyst Joseph Moore recently said could have an opportunity within AI that is multiple times larger than originally anticipated. Semiconductor fabrication companies like Taiwan Semiconductor (
NYSE:TSM
) and ASML Holding N.V. (
NASDAQ:ASML
) also have a place in the top 10 here, as AI wouldn’t be possible without these companies manufacturing the chips behind it for the likes of Nvidia and Advanced Micro Devices.
WTAI also holds the mega-cap tech names, like holding Meta Platforms (
NASDAQ:META
), and further down the list, Microsoft, Alphabet (
NASDAQ:GOOGL
), and Amazon (
NASDAQ:AMZN
), which are all making exciting advances in AI technology of their own. The portfolio also includes software companies like ServiceNow (
NYSE:NOW
) and UiPath (
NYSE:PATH
) that utilize AI within their offerings in order to help customers streamline and automate their workflows.
An additional thing you'll notice about WTAI's top holdings is that they have some very strong
Smart Scores. The Smart Score is TipRanks’ proprietary quantitative stock scoring system that evaluates stocks on eight different market factors. The result is data-driven and does not require any human intervention. A Smart Score of 8 or above is the equivalent of an Outperform rating.
Nvidia, C3.Ai (
NASDAQ:AI
), Lattice Semiconductor, Cadence Design Systems (
NASDAQ:CDNS
), and ASML lead the way with 'Perfect 10' Smart Scores. Meanwhile, AMD and Infineon Technologies (
XETRA:IFX
) also have Outperform-equivalent ratings, with Smart Scores of 8 and 9, respectively.
Is WTAI Stock a Buy, According to Analysts?
Analysts are also bullish on
WTAI stock, giving it a Moderate Buy rating. Of the 886 ratings on WTAI, 70.43% are Buys, 23.36% are Holds, and 6.21% are Sells.
The
average WTAI stock price target of $19.97 implies upside potential of 18.1% from current levels. The lowest price target, $15.90, is not too far below the ETF’s current price of $16.91, implying that while WTAI harbors solid upside potential, the downside could be limited from here.
Reasonable Expense Ratio
WTAI has a reasonable expense ratio of 0.45%. While this isn’t as cheap as one would expect from a low-cost, broad-market index fund, this is at least reasonable for a specialized, thematic ETF like this. While it's a bit higher than I would normally like to see, when
looking at a number of other popular AI-themed ETFs using TipRanks’ ETF comparison tool, WTAI has the lowest expense ratio of the bunch, narrowly edging out the
iShares Robotics and Artificial Intelligence Multisector ETF (
NYSEARCA:IRBO)
and coming in much lower than several other prominent names.
TipRanks users can use the comparison tool to easily compare up to 20 stocks or ETFs on a wide variety of customizable key criteria, such as price, Smart Scores, past performance, AUM, and much more.
A Strong Choice for Investing in the AI Megatrend
One risk that investors should be aware of is that at $13 million in AUM, WTAI is a very small ETF, which could make it more volatile than larger ETFs. However, it also has enough daily trading volume that liquidity shouldn’t be an issue for the average retail investor.
In summary, with a reasonable expense ratio (especially when compared to other AI-themed ETFs) and a well-diversified portfolio of holdings that encompasses all aspects of the AI space, WTAI looks like a strong choice for investors who want to gain exposure to this powerful long-term megatrend.
Disclosure
TipRanks
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