We recently published a list of The 10 best technology stocks for long-term purchase. In this article, we take a look at where NVIDIA Corporation (NASDAQ: NVDA) is performing compared to other technology stocks.
An analysis of the technology industry
The technology industry is one of the key drivers of the global economy. According to MGI Research, the global technology industry was worth $8.51 trillion in 2022 and is expected to grow at a compound annual growth rate of 7.75% to reach $11.47 trillion by 2026. In the United States alone, the information technology industry drives more than a third of the national economy.
One of the latest trends in the technology industry is the increasing investment in artificial intelligence by both tech giants and startup companies. According to a July 3 report by Reuters, venture capital funding in the U.S. rose to $55.6 billion in the second quarter of 2024. The funding increased by more than 47% quarter-on-quarter and was mainly driven by significant investments in artificial intelligence companies, including $6 billion raised by Elon Musk’s xAI.
However, in recent months, the technology sector has experienced a massive sell-off due to what analysts are calling the “AI bubble.” The sell-off began as investors raised concerns about the return on capital as they paid big bucks to invest in artificial intelligence. On August 5, CNBC reported that the “Magnificent Seven” of U.S. technology companies collectively lost a trillion dollars in market value at the start of the trading day. As a result, the NASDAQ lost 3%, marking the index’s sharpest three-week decline in two years.
We recently looked at the AI technology bubble in detail in 10 tech stocks to watch amid market volatility, according to Bernstein analystHere is a short excerpt from the article:
“Over the past few weeks, a massive sell-off in the technology sector, driven largely by concerns about return on capital amid exploding capital spending on artificial intelligence (AI), has rocked equity markets. Valuations have plummeted and fears have been stoked of an AI bubble in the market that may be about to burst. However, Stacy Rasgon, who has been tracking semiconductor stocks, one of the most significant sectors in the AI world, for over 15 years, has advised investors to stay the course, calling fears of a bubble overblown. Rasgon claims that while the probability of a bubble, used to describe stock price crashes, is 100%, he is convinced that now is not the time for it. He pointed to the very real and massive construction of an AI data center as an example, predicting that it would last for a few years, which would help drive AI stocks higher.”
Michael Landsberg, CIO of Landsberg Bennett Private Wealth, spoke about the AI bubble in a CNBC interview. He believes that the AI bubble has not burst yet and that we have seen a market reset recently where the market is resetting out of sync factors, which does not mean that analysts are not positive about AI. He added that many AI companies have had great results in the last six months and are growing their earnings. He believes that ultimately earnings drive any stock and as far as AI stocks are concerned, their earnings are growing and will continue to grow, which increases the price.
Furthermore, in another CNBC interview, Steve Eisman, Senior Portfolio Manager at Neuberger Berman, referred to the recent events as a “psychological rotation.” He mentioned that it was not a fundamental rotation that could have been problematic, but rather a psychological rotation that will not last long. He further mentioned that artificial intelligence will be with us for years to come and he still sees tremendous growth opportunities for companies investing in AI.
Our methodology
To compile the list of the 10 best technology stocks to buy for the long term, we used Finviz and Yahoo Finance’s stock screeners. We searched for technology stocks and sorted them by their market capitalization. From these stocks, we selected technology stocks that have been in business for 20 years or more and are expected to stay in business for several decades. Once we had the consolidated list, we evaluated the stocks most held by institutional investors in the second quarter of 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care what hedge funds do? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
A close-up of a colorful high-end graphics card connected to a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
Number of hedge fund owners: 179
NVIDIA Corporation (NASDAQ: NVDA) is one of the best technology stocks to buy for the long term. As of Q2 2024, the company was owned by 179 hedge funds, with a total value of $53.67 billion. Citadel Investment Group is the largest shareholder in the company with a stake of $18.35 billion.
The company is known for developing and manufacturing graphics processing units (GPUs) and hardware for artificial intelligence applications. The technologies produced by the company are used in the gaming industry, automotive, and data centers.
GPUs are NVIDIA Corporation’s (NASDAQ: NVDA) specialty, giving the company a strategic advantage over its competitors due to their wide range of applications. Originally, GPUs were primarily used to render gaming graphics, but their application range extends beyond that. Today, NVIDIA Corporation’s (NASDAQ: NVDA) GPUs are used to train AI models and have contributed significantly to the company’s revenue.
In the first fiscal quarter of 2025, the explosive growth of AI drove the company’s revenue up 262% year-over-year to $26 billion, well above the $24 billion forecast. Revenue growth was fueled by exceptional data center performance, which grew 427% year-over-year to $22.6 billion.
Gross margin increased 13.8 basis points year over year, indicating robust profitability. In addition, NVIDIA Corporation (NASDAQ: NVDA) reported an impressive 628% year-over-year increase in net income during the quarter.
Looking ahead, management remains confident that the growth trend will continue and expects revenue of $28 billion and gross margin of 74.8% for the next quarter. If you look at the performance over the past 5 years, you will see that NVDA is nothing short of exceptional. The company has grown its revenue by 49% and its profit by 67% while maintaining strong liquidity by increasing its levered free cash flow by 84%.
The company trades at a premium to its sector, but its earnings are expected to rise 92% to $0.71 for the year. 61 analysts have given NVDA a Strong Buy rating, with their median 12-month price target at $142.5, representing 15% upside from current levels.
Aoris International Fund stated the following about NVIDIA Corporation (NASDAQ: NVDA) in its second quarter 2024 investor letter:
“If information technology was the dominant sector of the quarter, NVIDIA Corporation (NASDAQ: NVDA), the largest supplier of microprocessors for generative AI applications, was the dominant company. NVIDIA’s share price rose by a third in the quarter and has gained 255% so far this year. Since the start of 2023, its market value has increased 8.3 times, or $4.3 trillion, making NVIDIA the third-largest company in the world by that measure.
Due to the unusually strong share price performance of NVIDIA and several other large companies, stock markets have become increasingly concentrated. This can be seen in the following chart: As of June 30, 27% of the market value of the 500 largest U.S. companies was accounted for by just five companies, more than double the average over the past 20 years.
The composition of the Aoris International Fund will always be very different from that of the broader equity market. There will be periods, like last quarter, where this contributes to our performance lagging behind our benchmark. At NVIDIA and other AI-centric companies, rapid growth is exciting, but it makes it difficult for us to judge what is normal. We prefer established leading companies where we can make a more confident, evidence-based judgment about their growth and profitability.”
NVDA total 6th place on our list of the best technology stocks to buy for the long term. While we recognize NVDA’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than NVDA but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.
Disclosure: None. This article was originally published on Insider Monkey.
