Another earnings season is nearing a close, but not before we hear from Nvidia.
The largest company in the world, with a market capitalization of about $4.4 trillion, reports Q2 results today, after the market close.
It would be an understatement to say that Nvidia results matter. What we learn today about the company’s earnings and forward guidance will impact many metrics. These include market sentiment, risk appetite, big tech and growth stock momentum, the AI investment theme, etc. Nvidia is a pivotal character in many story lines.
Nvidia Everywhere
In the ETF world, over 3.5 billion shares of Nvidia are held across over 670 ETFs, according to FactSet data. Consider the size of that footprint for a minute.
For example, the Vanguard S&P 500 ETF (VOO) — the year’s most popular ETF, with inflows now exceeding $80 billion — owns more than $100 billion worth of Nvidia shares. Nvidia represents about 8% of the fund’s exposure. The Invesco QQQ Trust (QQQ), where Nvidia snags nearly 10% of the fund, has over $36 billion worth of Nvidia shares.
As you go down into sector, style, and thematic plays, that footprint is equally impressive, FactSet data shows. And that’s to say nothing of leveraged and single-stock strategies.
The Technology Select Sector SPDR Fund (XLK) has 16% tied to Nvidia. The growth-focused Fidelity Fundamental Large Cap Growth ETF (FFLG), too, has nearly as much. The growth-meets-innovation AOT Growth and Innovation ETF (AOTG) has nearly 13% in Nvidia. The AI-focused Janus Henderson Global Artificial Intelligence ETF (JHAI) has over 14%.
Semiconductor ETFs have massive exposure to Nvidia. Single-stock and leverage funds do too. ESG ETFs are holders. Quality funds, free cash flow ETFs, dividend strategies, momentum plays, aerospace and defense. That’s a long list of Nvidia stakeholders, all eyeing the latest peek into the company’s bottom line.
More Specifically … Nvidia & AI
Going into today’s earnings results, and acknowledging the market’s enthusiasm over AI, it’s important to put Nvidia’s results — whatever they may be — into a broader context. Here are a few considerations:
1. There are more potential winners in the AI race than Nvidia alone.
There are high expectations for Nvidia. But there are also concerns. These include high costs — especially tied to data centers — and the unclear path to monetization linked to some tech like generative AI and large language models (LLMs).
“The potential monetization, or lack thereof, of the big players investing into LLM’ is something we have flagged for over two years now,” said Zeno Mercer, TMX VettaFi’s lead robotics and AI analyst. “We called it ‘if you build it, they (open-source) will come.’ So, yes, there is still an expectation of a multiyear runway for AI CapEx. However, the winners of AI will start to expand into a larger class of players, including those helping bridge AI into the real world.”
As a thematic opportunity, AI isn’t just about chips and LLMs. Breadth is an increasingly compelling framework with which to explore the theme. From that perspective, the key takeaway is that Nvidia isn’t the only story. And as Mercer put it, “Even an Nvidia miss could give rise to others.“
What others? According to him, firms tied to what he refers to as the inference economy. That’s the “persistent operational expenditure cycle” that goes beyond the initial capital-intensive infrastructure and data center buildouts. Companies like Cloudflare loom large here. So do other names tied to cybersecurity, connectivity, edge compute capabilities, and so on. “The CapEx plus OpEx of AI,” Mercer said.
“Clearly people are monitoring supply versus demand, as well as Nvidia market share versus AMD, Google TPU, and other players,” he explained. “But it’s important to understand that any potential slowdown in AI CapEx for d data centers is not a slowdown or bubble popping in AI. That’s just one segment of the larger AI ecosystem.”
2. Whatever your view on Nvidia and AI, there’s an ETF for it.
As noted earlier, there are many ETFs offering access to Nvidia and to the AI theme. Product due diligence is a tall order, no doubt, but the good news is you can use as dull or as sharp an investment tool as your risk appetite desires.
From leveraged plays like theProShares Ultra Semiconductors (USD) offering exposure to Nvidia at around 31%, to funds like the T. Rowe Price Hedged Equity ETF (THEQ) and the Astoria US Equal Weight Quality Kings ETF (ROE), where Nvidia sits around 1% or less, there’s a wide range of exposure to Nvidia through ETFs.
In the AI thematic category, a fund like the Roundhill Generative AI & Technology ETF (CHAT), focused on generative AI, allocates over 8% to Nvidia. By comparison, the ROBO Global Artificial Intelligence ETF (THNQ) has 2.5% in Nvidia because the fund takes a broader view of the theme. It invests in those developing and building the AI tech and infrastructure, as well as those deploying it into their own businesses.
Artificial intelligence ETFs are diverse. Each hones in or zooms out on various parts of the opportunity set. (You can see a broad list of AI ETFs here.)
Data Plus Context
As we anticipate the numbers Nvidia will release today, and brace for market impact, I like to remember that data only matters in the presence of context. Where you sit in your equity allocation, risk exposure, and AI-focused investments matters when it comes to expectation of results and impact.
Today, a “beat” in Nvidia results may bode well for big tech, momentum, and Nvidia-heavy plays despite concerns about valuations, CapEx and so on. Concentration may be your friend.
On the flip side, a “miss” in the results may bode well for other parts of the AI ecosystem, equal-weighted plays, and broadly diversified strategies.
Either way, we will all be watching what Nvidia reveals today and what the market does next. And then, only then, we can turn our thoughts to summer’s last hurrah this Labor Day weekend.
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