Alexander the Great wept because there were no more worlds to conquer. Julius Caesar wept when he compared himself to Alexander. Napoleon wrote, somewhat frantically, in exile how his own deeds and maneuvers were braver and superior to those of Caesar.
The point is, even people at the height of their success worry that they won’t be able to maintain their momentum.
Tech investors may be similarly concerned after the sector’s big gains this year and last, but there’s no need to fret, as the artificial intelligence revolution is still underway.
AI superstar Nvidia
S&P 500
It’s up 100 points so far this year. The company, valued at about $2.6 trillion, has grown exponentially and is now larger than Amazon and Tesla combined.
Plus, as DataTrek co-founder Jessica Rabe points out, Nvidia currently has a 3.4% weighting in the MSCI All Country World Index, making it the third-largest stock after Microsoft and Apple.
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That means that if it were a country, it would have the fourth-largest exposure in the index after the U.S., Japan and the U.K. It has a higher weighting than 10 countries including China, and is larger than both the global utilities sector and the global real estate sector.
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Nvidia has been a long-time leader, outperforming the S&P 500 by 45 percentage points every year since 2004.
But Rabe points out that the company’s recent strength has been near the high end of its range, and given its size, it’s unlikely it will continue to outperform the S&P 500 by 45 percentage points going forward.
“If they do this within the next year, NVIDIA’s valuation would exceed Microsoft’s current valuation ($3.2 trillion), and if they do it within the next two years, it would dwarf the entire U.S. stock market,” Rabe said.
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Still, while she believes Nvidia’s growth rate should slow, she said she’s “not calling for a drop in the stock price, merely noting that the potential for annual profits going forward is much more limited than in recent years.”
Moreover, Wall Street has not lost interest in AI investments of any kind.
As Bank of America equity strategist Savita Subramanian points out in her latest analysis of actively managed mutual fund holdings, Nvidia is a core stock, held by more than two-thirds of funds, with about half overweighting it.
“A 10% increase in the share price relative to earnings as the market falls suggests there are more new buyers on the way,” she notes.
Additionally, nine of the 10 stocks with the largest increases in ownership over the past 12 months are technology or AI related, with the only exception being
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Eli Lilly
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The company rose to fame with its GLP-1 weight loss drugs.
Thomas Lee, head of research at Fundstrat Global Advisors, argues that investors are right to think the AI party is just getting started.
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Lee predicts that the tech sector’s share of the S&P 500 will increase to 50% from its current 30% as companies collectively spend about $3.2 trillion a year.
The catalyst is the ongoing labor shortage, which companies are hoping to combat with increased automation and increased efficiency and productivity through technology.
Overall, technology is likely to continue to move forward at a rapid pace, so it’s worth jumping on the bandwagon.
Email Teresa Rivas at teresa.rivas@barrons.com.
