Beyond NVDA : 3 diversified Alternatives !
Semiconductor company and stock market darling, Nvidia (NVDA) has been on the run in the last few years, riding the wave of growing interest in (a) cryptocurrency and then (b) emergence of artificial intelligence (AI).
A $1,000 investment 5 years before would have grown to >$30,000 by July 2024.
Not surprisingly, investors have set their sights on finding the stocks that could become the next Nvidia.
A good place to begin is by looking for:
Companies that can benefit from the growing interest & investment in AI. or
Other highly scalable businesses riding a similar decades-long trend.
Tech Wave - 3 Hot Stocks.
Nvidia is among a rarefied group as one of the world’s most valuable companies.
The stocks below would not need to become that large (in value) in order for investors to enjoy strong returns over the years.
**Note: data referenced below were as of 27 Aug 2024.
$Broadcom(AVGO)$
Market cap: $753 billion
Broadcom is the largest stock on the list, yet it’s only a quarter of the size of Nvidia.
The semiconductor company produces application-specific integrated circuits (ASICs) that are designed for specific jobs.
ASICs are useful in AI applications, and Broadcom is a demonstrated leader in this growing area of the market.
The company already counts many of the largest tech companies among its clientele, including Google and Meta Platforms.
Equally important, analysts expect strong growth in the years ahead.
“Good news”: Since its forward stock split on 12 July 2024, after market closed, its current stock price is still below its stock-split price, presenting an unbeatable buy-in opportunity. (see above)
$SUPER MICRO COMPUTER INC(SMCI)$.
Market cap: $32 billion
SMCI has been one of the strongest tech stocks of late.
Although its stock price has declined from its peak, it is still valued at a relatively modest $36 billion (compared to Nvidia).
Its specialty lies in building servers and storage for cloud data centers, including AI servers, using chips from leaders such as Nvidia etc..
This position SMCI to gain market share, heading into the future where AI will be the “new” standards.
While revenue grew briskly in fiscal year ending June 2024, up +110% YoY, they soared even faster in the final quarter, up +143 percent.
Sales could double again in the coming year if the top end of management’s guidance is correct.
All good news, but the biggest knock on the company is its “High teens” gross margin, which means the company won’t scale as well as a well-run software outfit.
Its strong sales growth makes that easier to overlook for now.
Super Micro Computer, Inc. (SMCI) stock began to spike significantly in 2023. (see above)
On 10 Nov 2022, its share was a “reasonable” $80.72.
On 13 Mar 2024, it peaked at $1,188.07.
Although it is currently trending below its 200-day and 50-day moving averages, its stock price is still way more “valuable” than its price just barely more than one year.
Primary catalysts for its upward trajectory included:
(1) AI Industry Expansion:
Surge in demand for AI chips and servers played a crucial role.
SMCI’s products, particularly their AI servers, became highly sought after due to the growing AI market12.
(2) Strategic Partnerships:
Collaborations with major companies like Nvidia and Intel (INTC) boosted investor confidence and drove stock prices higher.
(3) Innovative Products:
Introduction of new products, such as Edge AI and advanced liquid cooling technologies, positioned SMCI as a leader in the AI hardware space.
(4) Market Response:
Quick market responses and strategic moves to meet the increasing demand for AI servers further propelled the stock.
These factors combined to create a strong upward momentum for SMCI’s stock price.
Advanced Micro Devices (AMD)
Market cap: $243 billion
AMD has been rising for some time, and rival chipmaker Intel is on its heels.
AMD’s graphics cards compete favorably with Nvidia’s, and the company has been gaining share in recent years.
That has led to a strongly advancing share price, but AMD remains just a fraction of the size of the juggernaut Nvidia, less than 8% as large, to put a finer point on it.
While AMD may never become as large, the demand for computing power is expected to rise strongly for years, not only due to AI but also due to the increasing prevalence of entertainment and media in our lives.
This megatrend means there’s plenty of room for innovative chip companies to thrive.
3 Hot Tech Stocks - To Buy or Not to Buy ?
Advantage of buying individual stocks is investors could do much better than an index fund, even one concentrated in a hot sector eg. semiconductors or information technology.
It is simple mathematics.
If investors can identify companies that bring up the average, these stocks are going to do better than the average, which itself is the index’s performance.
Trick is finding them.
Many hot stocks can perform well for long periods, and it’s not unusual to see the best stocks return 25% to 30% annually, over decades.
That beats strong returns from top index funds such as:
Vanguard S&P 500 ETF (VOO).
Nasdaq-tracking Invesco QQQ Trust (QQQ)
Above 2 index funds earned +15.6% and +21.2% annually in the past 5 years respectively.
Disadvantage of buying individual stocks, requires:
Extensive research.
Tracking to keep up with them.
Competition.
The competitive landscape changes fast, especially in the tech world.
Those who are not a tech-savant, could be left behind quickly.
The “good” new is investors can still earn attractive returns without:
Taking on the concentrated risks of individual stocks.
Having to do all that much research.
Meaning?
Thematic exchange-traded funds (ETFs) can be (a) an attractive and (b) low-cost way to achieve a diversified portfolio and earn strong returns.
Below are some best tech ETFs that have compelling annual returns over the last five years:
$iShares Semiconductor ETF(SOXX)$ : 28.3%.
For first 8 months of 2024, it has made a +21.68% YTD gain.
It “peak” on 10 Jul 2024 at $265.49 per unit.
$Vanguard Information Technology ETF(VGT)$ : 22.6%.
Like SOXX, VGT also made a +20.54% YTD gain. (see above)
Unsure if it was a coincidence, VGT also peaked on 10 Jul 2024 at $606.85 per unit.
iShares Expanded Tech-Software Sector ETF (IGV): 14.8%.
Summary & Bottom line.
Summary.
Finding funds with strong long-term track records can be a much simpler process than doing the necessary work on dozens of stocks by oneself.
Coupled with direct investments in some of the “selective” hottest stocks, leading to increased safety of diversification.
Strong returns, low cost and less work – explaining why investors both new and advanced turn to sector ETFs such as those above.
Bottom line
Identifying the next Nvidia could be well worth one’s time.
This is because of the prospect of decades of strong returns when one is right.
At the same time, investors can do just fine by buying index funds that hold some of the best tech stocks, adding to their position over time regularly and then holding on.
When it comes to financial investments, do you have ETF funds in your portfolio or are you strictly 100% equities holder only ?
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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