US chipmaker and graphics card tech giant Nvidia Corp. watched its shares jump 15 percent Thursday morning, a day after its earnings beat Wall Street’s estimates. It was set to begin market trading Friday with a $2 trillion market cap.
On Wednesday, Nvidia had reported revenue of $22.1 billion for its fiscal fourth quarter, which was an increase of 265 percent year over year, and compared to an expected $20.62 billion. Meanwhile, the company’s net income surged by 769 percent as it continues to benefit from the excitement over artificial intelligence.
Nvidia also blew past projections last quarter, and its results had Goldman Sachs claiming that it was “the most important stock on planet Earth.” It's the talk of the town so, where do advisors stand?
While Andrew J. Evans, founder and CEO of Rossby Financial, an RIA, said that while that’s “a dramatic thing to say,” he doesn’t expect Nvidia to fall off anytime soon.
“This is now going to really open up the chance for more competitors to figure out what was the magic that [Nvidia] had that made everybody start to utilize their services more in their products and their processes,” Evans said. “At this level of their value, people are going to want to participate, but they might not be willing to pay that price for the stock … It might be the most important one, but do they have enough of a product line that you want to buy them?”
While AI continues to be a central topic in the industry, Evans added that he doesn’t get a lot of clients directly using it. “I do have clients that are in the technology space and for the most part, they really enjoy it,” he said, but added that investing in technology is “for your everyday investor, who are predominantly people who are about to retire or who are getting into retirement.”
Liz Miller, president and founder of Summit Place Financial, literally holds Nvidia in high esteem.
“We are holders of Nvidia, and I do hold it personally and with my family,” Miller says. “We've been a holder of the stock for many years, and they've always been in a position of very high intensity. It's exciting to see that they are pushing the envelope and able to power models that have really been known in the technology industry for years, but we didn't have computing power to put them to work.
“We're now able to start putting into place these algorithms and this research that computer scientists have known for years,” she added.
Jack Heintzelman, financial planner at Boston Wealth, said that AI and technology are currently the common themes in the market and are where companies are investing their money.
“It's a little bit of good news, I would say, for the tech world, because it's confirmation that demand is legit and that demand is there,” he says.
Regardless of what happens daily, advisors should ensure clients are aligned with a strategic allocation, Heintzelman added.
“It’s all about diversification,” he says. “If there's a belief that technology is going to do well, then you want to choose companies in that sector that that are also going to align with that longer-term strategy, that strategic allocation.”
Miller agrees with Evans that more competition will emerge, especially among industries that deal with artificial intelligence that haven’t been thought of yet, such as "the delivery of health care industries and places where expertise and productivity can be enhanced with AI as an underlying support.”
Advisors and portfolio managers might decide to invest in Nvidia, Evans noted, especially if they missed investing in any of the major tech stocks last year. “This is their chance to do that again,” he says.
Joe Duran, CEO of Rise Growth Partners, said investors should consider whether the stock's trading accurately reflects the future or whether it’s just pure optimism. He’s worried that what's happening with AI is starting to resemble the beginning of the internet.
“This is a huge and massive movement. It is inescapable and more important than blockchain and bitcoin ever were,” he says. “When you have a lot of traders in a position, it invariably increases volatility because it's not about earnings anymore.
“I would just say tread lightly," Duran added. "Make sure you're not overweight because it’s gonna be a bumpy ride.”
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