Nvidia bull run and AI wave: Indian funds profiting from its stock surge

Nvidia got a head start by being the first to offer powerful GPUs, and now they're capitalizing on the growing demand for AI technology by providing the hardware needed to make it work

Imagine buying a stock for $100 and a year later it's worth $200! That's kind of what's been happening with Nvidia, a company that makes computer chips. Their stock price has been on a crazy ride lately, going way up in value. Nvidia’s stock has multiplied tenfold since late 2022 and almost tripled so far this year. The chipmaker became the world's most valuable company for the first time on June 18, after its market capitalisation surpassed Microsoft and Apple briefly.

Point to note: Microsoft and Apple took about six years to touch the $3 trillion-mark from $1 trillion, while Nvidia did it in one year. This rise can be attributed to  Nvidia getting a head start by being the first to offer powerful GPUs, and now they're capitalizing on the growing demand for AI technology by providing the hardware needed to make it work. These two factors (first-mover advantage and AI revolution) are key reasons behind Nvidia's meteoric rise in the stock market.

Why is Nvidia's stock doing so well?

There are a couple of reasons:

The Age of AI: Nvidia is a leader in developing Graphics Processing Units (GPUs), which are powerful computer chips specifically designed for complex calculations. AI applications like facial recognition, self-driving cars, and natural language processing require this processing power to function. As the field of AI explodes, the demand for Nvidia's GPUs skyrockets, boosting their business and stock price. Moreover, Nvidia wasn't just good at making GPUs, they were one of the first companies to see their potential beyond just gaming and video editing. This early recognition allowed them to establish themselves as a leader in the GPU market, gaining a loyal customer base and brand recognition. Now, when companies need powerful GPUs for AI, Nvidia is often the first name that comes to mind.

"The tailwinds of AI have boosted Nvidia's revenues and profits in an unfathomable manner. Take their revenue for instance. Their topline for 2022 was $26.9 billion, but according to the latest quarterly results, the company made $26 billion in a single quarter. Net profits, meanwhile, grew from $4.4 billion in 2022 to latest quarterly profits of $14.9 billion. When your revenues and profits improve in such an unprecedented fashion, they are bound to reflect in the stock price," said Ashish Menon of Value Research.
 

Chip Shortage: The world is currently facing a shortage of semiconductors, the tiny electronic components that power everything from computers to smartphones. This limited supply, coupled with the high demand for Nvidia's GPUs, has driven up chip prices. As a result, Nvidia benefits from increased profits, which further attracts investors.

 Strong Investor Confidence:  Nvidia's consistent financial performance, coupled with their position at the forefront of the AI revolution, has instilled confidence in investors. They see Nvidia as a company with a bright future, leading them to buy large amounts of Nvidia stock, which drives the price even higher.

Value Research has identified eight funds that have ridden the tsunami wave of Nvidia and are still holding on. Of the eight funds, five are passives and have held Nvidia stocks by virtue of tracking the Nasdaq and S&P 500 indices.

Domestic mutual funds riding on Nvidia's bull run

Source: Value Research

Source: Value Research
*Since Nvidia's entry into the fund. Holding as of May 31, 2024 and absolute price return as of June 18, 2024. FoFs that may be indirectly holding Nvidia have not been considered.

"Interestingly, two of three active funds belong to Axis Mutual Fund , a fund house that has struggled in recent years. The fact that Axis Growth Opportunities and Axis Innovation have seen their holdings grow at least 190 per cent is a minor shot in the arm for them," said Ashish Menon of Value Research.