NVIDIA's Earnings Looming: Are Hedge Funds Selling Out?
With NVIDIA (NVDA) set to release its latest earnings figures, analysts are buzzing about the company's performance in a market gripped by AI excitement. However, a closer look reveals that some prominent hedge fund managers are scaling back their positions in the tech giant, sparking questions about its future trajectory.
The AI-powered surge in the stock market is undeniably impacting various sectors, but large-cap tech companies remain the primary focus for many investors. Morgan Stanley, in its August report, highlighted that while small-cap stocks have seen a rebound fuelled by hopes of rate cuts, this window of outperformance is "too narrow." This is due to the correlation between small-cap performance and economic growth acceleration, which is currently limited by the inflationary environment.
Despite the widespread enthusiasm for AI, recent earnings reports suggest that immediate returns on investment are still relatively small. However, long-term gains appear promising as companies begin to monetise their AI investments. While Goldman Sachs acknowledges the potential of AI, it has expressed cautious optimism about its immediate benefits.
Hedge funds, with their vast resources and capital, often act as early indicators of market trends. Examining their stock movements offers valuable insights into investor sentiment. This article delves into the 10 most significant AI stocks that caught the attention of elite money managers in the second quarter, based on their filings.
NVIDIA Corporation (NVDA) holds a prominent position on this list, with 179 hedge fund investors at the end of Q2, a slight decrease from 186 in Q1. However, several prominent investors have reduced their holdings in the company. Rajiv Jain's GQG Partners slashed its stake by 44%, DE Shaw's fund lowered its position by 52%, and Ken Griffin's stake fell by 80% to $299 million. Notably, Paul Singer, who recently labelled NVDA and other leading AI stocks as "bubble land," sold his entire stake in the company during Q2.
While analysts at Jefferies anticipate a strong beat in NVIDIA's upcoming earnings, the stock price has been declining due to valuation concerns. Despite this, Morgan Stanley re-added NVDA to its top picks list, highlighting the strong demand for the company's Hopper chips.
However, recent earnings from major tech companies have raised concerns about NVIDIA's long-term growth prospects. Meta Platforms and Alphabet, major customers of NVDA, have indicated potential overspending on AI chips. With NVIDIA currently selling around 2 million GPUs annually, sustained growth could be impacted as demand moderates and competitors ramp up production.
Raymond James analyst Javed Mirza recently flagged a "mechanical sell signal" for NVDA based on a moving average convergence/divergence indicator. He observed that the stock is trading below its 50-day moving average, suggesting early selling pressure and a potential corrective phase lasting 1-3 months.
Aoris International Fund, in its Q2 2024 investor letter, acknowledged NVIDIA's impressive performance but highlighted the challenges of assessing its growth and profitability due to its rapid expansion. The fund expressed a preference for investing in established leading companies with more predictable growth and profitability.
Despite its prominent position in the AI market, NVDA's declining hedge fund interest and concerns about its long-term growth trajectory raise questions about its future performance. Investors will be closely watching its upcoming earnings report for further insights into the company's prospects.
