- Funds’ Nvidia positions have grown as the stock has soared, increasing risk.
- US equity markets are increasingly powered by a handful of giant tech stocks.
OUR TAKE
Nvidia’s impressive performance is undeniably tempting, but over-reliance on a single stock can be perilous. Diversification remains crucial to mitigate potential risks. Investors should carefully balance their portfolios to navigate the volatile landscape of tech stocks.
—Doris Du, BTW reporter
Nvidia‘s meteoric rise has propelled portfolio managers’ returns this year, but the significant bets on the chipmaker’s stock might magnify risks if its shares take a downturn.
What happened
Nvidia shares have surged approximately 785% since the start of 2023 and risen around 160% this year alone, driven by high demand for its AI chips. In June, Nvidia briefly became the world’s most valuable company before a slight dip returned that title to Microsoft.
Also read: Nvidia set to make $12B from AI chip sales in China
Also read: Nvidia surges to become world’s most valuable company
Why it’s important
Asset managers’ holdings in Nvidia have swelled in tandem with its stock price. Data from Morningstar revealed that 355 actively managed funds held Nvidia positions totalling 5% or more of their assets at the end of the first quarter, compared to just 108 funds during the same period last year. This concentration raises concerns about potential risks if Nvidia’s stock declines.
Opinion
The obsession with Nvidia reflects a broader trend where investors are heavily investing in a few massive growth stocks. The allure of extraordinary returns is hard to resist, especially when it feels like you’re riding the wave of the future. However, the sheer concentration in a single stock like Nvidia brings back memories of past market corrections where overconfidence led to significant losses. The thrill of seeing your investments skyrocket is matched only by the anxiety of knowing they could plummet just as quickly. It’s a potent reminder that while the future of AI is bright, the road there will undoubtedly have its share of bumps. Balancing ambition with caution is crucial for long-term success and peace of mind.
