Teresa Rivas
In the age of Nvidia, it can feel difficult to escape the influence of the maker of artificial-intelligence chips. Yet investors looking to diversify still have other options, without leaving the tech sector.
Shares of Nvidia have soared nearly 75% this year alone, boosted by enthusiasm about the transformative power of AI. The stock's market capitalization crossed the $2 trillion mark in February after Nvidia's blowout quarter, and while its next earnings report isn't until May, investors are already looking forward to more good news.
Nvidia's huge success has put it well ahead of the rest of the Magnificent Seven big tech stocks that dominated 2023. Its rally, along with high hopes for its coming results, naturally has led some investors to be nervous about a potential fall, and looking to diversify.
Luckily, they can do so while still being invested in the tech sector, given that despite often being lumped together, these stocks don't always trade in lockstep.
To find those that might provide the best alternatives, TriVariate Research Founder Adam Parker looked for stocks that are up in absolute terms since the start of 2023 -- when the Magnificent Seven and Nvidia began their massive run -- that have relatively low correlation of returns to Nvidia over the same time frame.
This list turned up mostly software and services names. Check Point Software Technologies has the lowest correlation to Nvidia, at just 0.09, and shares have gained 30% since the start of 2023; asset-tracking systems provider Samsara has the highest correlation of the list, but that's still just 0.21, and its shares have soared 202%.
The other six names on the list are Aspen Technology, First Solar, AppFolio, Akamai Technologies, Twilio, and Confluent.
Of course, if Nvidia takes a tumble, that could weigh on the semiconductor sector as a whole. Therefore, Parker screened for tech stocks that had the lowest correlation to chip stocks during the previous 10 corrections, when that sector was down 10% or more (as measured by the performance of the VanEck Semiconductor exchange-traded fund).
This list was dominated by solar, software, and IT services, and includes some overlap with the prior set -- First Solar, Check Point, and Akamai. The other names that made the cut, in order of lest to most correlation, were Ubiquiti, Gartner, Enphase Energy, Amdocs Limited, Trimble, SolarEdge Technologies, and Palo Alto Networks.
So far, being a Nvidia doubter hasn't paid off. Nonetheless, for those who want to hedge some of their bets in tech, there are plenty of options that should be less impacted should the AI bellwether take a tumble.
Write to Teresa Rivas at teresa.rivas@barrons.com
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(END) Dow Jones Newswires
April 19, 2024 12:48 ET (16:48 GMT)
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