The ubiquity of Nvidia is evident with its appearance in over 2,000 ETFs, according to data extrapolated from ETF Database. With that, its fiscal 2027 Q1 earnings were highly anticipated as a bellwether for not just the semiconductor and broader tech sectors, but as a directional compass for the current market environment.
“Sometimes it feels like it’s Nvidia’s world, and we are all just living in it,” said Cinthia Murphy, TMX VettaFi director of research, ahead of the earnings release.
That said, the compass pointed upwards for bullishness after Nvidia revealed beats on earnings and revenue after the bell on Wednesday. Earnings per share ($1.87), revenue ($81.6 billion), and even Q2 guidance (~$91 billion) were all above Wall Street’s expectations. These are certainly hallmarks of a company steeped in quality.
See more: It’s Nvidia’s World: How Advisors See the Next Phase of AI
Nvidia’s Rapid Ascension
The chipmaking giant is typically synonymous with growth, especially given its five-year run where it gained roughly 1,400%. However, the lines separating its factor delineations have become more blurred recently.
Nvidia’s market cap was at around $336 billion in late 2022 before growing to its massive $5 trillion today. The company went from specializing in chips for gaming to a major player in AI infrastructure. tt currently has the heaviest weight in the S&P 500. Given this rapid ascent, Nvidia has effectively transformed itself from a budding growth stock to wearing a members-only Magnificent Seven jacket in rapid order. Moreover, a Magnificent Seven party doesn’t get started until Nvidia walks into the venue.
See more: Nvidia Earnings Are Set to Make or Break the Chip Stock Rally
From Growth to Quality
Nvidia is now a textbook fit for quality-focused indexes in ETFs given its strong underlying business fundamentals. The company has become the smartest kid in the quality classroom, scoring exceptionally high on metrics like high return on equity (ROE), strong return on invested capital (ROIC), stable earnings growth, and low balance sheet leverage.
ETFs with quality strategies will typically ignore hype and focus on the raw numbers affecting the bottom line. In the end, those numbers better scream the words “operational efficiency” and “profitability.”
Indeed, Nvidia is shouting out those words through a megaphone thanks to its strong economic moat. The chipmaker has a virtual monopoly on AI chips, which gives it immense pricing power. This effectively translates into staggering gross and net profit margins that outpace its S&P 500 peers.
Quality-focused indexing methodologies will also screen for cash-rich companies with sustainable competitive advantages like Nvidia. With that, Nvidia has emerged as a fundamentally sound machine nowadays as opposed to a speculative growth name.
3 Quality-Focused ETFs
Nvidia’s strong fundamentals mean that it can walk through quality-focused screeners and into ETFs that align with that factor. That said, here are a few funds to consider where Nvidia is a top 10 allocation: VictoryShares Free Cash Flow Growth ETF (GFLW), Fidelity Quality Factor ETF (FQAL), and American Century U.S. Quality Growth ETF (QGRO). Each fund carries its own methodology, but the common denominator is that Nvidia is proving to be a fundamentally sound quality anchor.
Converting revenue directly into cash flow is where Nvidia displays true industrial velocity. Hence, its inclusion in an ETF like GFLW that uses a strict screener to identify true growth characteristics.
GFLW screens for companies that have demonstrated the ability to generate cash above and beyond what it costs to run the business. That capacity is measured by FCF return on invested capital (FCF ROIC): the average of trailing 12-month FCF and next 12-month forward FCF, divided by invested capital.
In FQAL, Nvidia commands the top spot in its holdings due to its exceptional performance on core metric scoring. The fund relies on a quantitative index that filters companies based on high ROE metrics as well as stable year-over-year earnings growth.
Finally, QGRO blends structural growth requirements with capital preservation features. QGRO divvies up its portfolio allocation by splitting between growth achievers and growth innovators. The former includes established, high-quality compounding businesses while the latter addresses rapidly expanding firms. Nvidia can seamlessly bridge both of these allocation worlds, offering top-tier growth alongside innovative products.
Ultimately, all three ETFs demonstrate that Nvidia’s quality position is earned not through just growth-fueled speculative hype anymore, but through bulletproof balance sheets built on profitability and flush with cash.
For more news, information, and strategy, visit ETF Trends.
Originally published on ETF Trends
VettaFi LLC (“VettaFi”) is the index provider for GFLW and QGRO, for which it receives an index licensing fee. However GFLW and QGRO are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of GFLW and QGRO.
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