Thanks to its dominant position in the field of artificial intelligence chips, Nvidia's stock has performed exceptionally well in recent years. Since the beginning of 2023, the stock price has risen by approximately 785%, with a rise of about 160% just this year. In June of this year, Nvidia briefly became the world's most valuable company.
However, last week, due to the cooling of inflation data causing a significant one-day fluctuation in large technology stocks, Nvidia fell nearly 6% on Thursday, marking the largest single-day drop in over two weeks; the technology stock-heavy Nasdaq 100 index fell by about 2.2%.
Analysts believe that increased competition, changes in supply and demand balance, and overvaluation may lead to increased risks for Nvidia's stock. "If Nvidia's stock price falls, being overly concentrated in one stock could pose risks to investors."
"Funds holding Nvidia have greatly benefited."
At present, the proportion of Nvidia's holdings in funds is continuously increasing. According to Morningstar data, as of the end of the first quarter of this year, 355 actively managed funds held Nvidia's stock, accounting for 5% or more of their total assets, compared to only 108 funds in the same period last year.
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Morningstar Senior Analyst Jack Shannon pointed out: "Some portfolio managers believe they missed out on opportunities with Apple or Microsoft, and they do not want to make the same mistake with artificial intelligence, so they are reluctant to sell Nvidia."
Some analyses suggest that Nvidia's substantial positions reflect investors' hopes to invest through a few large growth stocks, leading to a high concentration in the market. According to data from S&P Dow Jones Indices, Nvidia alone accounts for about one-third of the nearly 17% increase in the S&P 500 index this year.
A strategist at Bank of America Global Research indicated that the current market concentration is the third-highest since 1986, with only 24% of the stocks in the S&P 500 index outperforming the index's increase in the first half of the year.
Funds holding Nvidia have greatly benefited. Morningstar data shows that actively managed U.S. stock funds holding Nvidia's stock rose by an average of 16.3% in the first six months of 2024, while funds not holding the stock had an average return rate of 5.7%.
Market volatility triggers investor concerns.Currently, analysts have an average target price for NVIDIA of $133.45, which is about 3% higher than the current level. According to data from the London Stock Exchange, NVIDIA's forward price-to-earnings ratio is 39.3 times, which is about 50% higher than the industry median. Some analysts believe that NVIDIA's valuation is already too high and there may be a correction.
Phil Orlando, Chief Equity Market Strategist at Federated Hermes, said:
Putting 6% or more of a portfolio into a single stock obviously carries significant risk. Even though a stock may soar like a rocket, it does not mean that this is a wise investment... Do not put all your eggs in one basket.
Anthony Zackery, a portfolio manager at Zevenbergen Capital Investments who has held NVIDIA since 2016, said he would "cautiously" reduce his position regularly to ensure that the risk is within his tolerance level.