In this article, we discuss the 10 tech stocks hedge funds prefer over Nvidia. If you want to skip our detailed analysis of these stocks, go directly to the 5 Tech Stocks Hedge Funds Prefer Over Nvidia.
NVIDIA Corporation (NASDAQ:NVDA), the California-based visual computing firm, has made giant strides in the last two years to transform itself from a small gaming company to a technological giant whose products power the global digital economy. The semiconductor products made by the firm are used to power laptops, data centers, driverless cars, cryptocurrency mining operations and even artificial intelligence driven robots. The stock has returned more than 87% to investors over the past twelve months.
Some of this growth is driven by the dramatic increase in semiconductor prices because of increased post-pandemic demand and supply chain constraints leading to a chip shortage. NVIDIA Corporation (NASDAQ:NVDA) registered 53% topline growth in the last fiscal year and has already reached 31% topline growth so far this year. However, market experts believe that a change in interest rates could hit the firm harder than peers, in addition to the concerns regarding the valuation of the stock.
The influence of other macroeconomic trends, like the recent crackdown against crypto operations in China, could also weigh heavily on the company in the near-term. The cyclical nature of the semiconductor industry in the past indicates that the high demand for NVIDIA Corporation (NASDAQ:NVDA) products might cool off significantly in the coming months. The forward PE ratio of the company remains high at over 53. The firm has also crossed over $550 billion in market capitalization, reporting a little over $16 billion in revenue last year.
Analysts Are Cautious About NVIDIA
Last month, analysts took a cautious approach towards NVIDIA Corporation (NASDAQ:NVDA), underlining that the earnings beat of the firm in the second quarter of 2021 was not as impressive as it had been in previous quarters. The guidance numbers for the third quarter, according to Barclays analyst Blayne Curtis, were also not as significant when compared to previous quarters. Meanwhile, Summit Insights analyst Kinngai Chan downgraded the stock to Sell from Hold, noting that there could be a $1 billion downside in the gaming sales for the firm early next year.
Investors looking for alternative options in the technology sector should check out stocks that hedge funds prefer like Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL), among others discussed in detail below. NVIDIA has been the lifeblood of the tech-enabled disruption that has pummeled entire investment portfolios in recent months and transformed the finance world.
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Our Methodology
With this context in mind, here is our list of the 10 tech stocks hedge funds prefer over Nvidia. Only those companies that had a better hedge fund sentiment than NVIDIA Corporation (NASDAQ:NVDA) at the end of the second quarter of 2021 were selected for the list.
The list is ranked according to the number of hedge funds having stakes in each company. Data from the 873 funds tracked by Insider Monkey was used for this purpose.
Special importance was assigned to outlining the analyst ratings and business fundamentals for each firm to provide readers with some context so they can make more informed investment choices.
Why should we pay attention to hedge funds’ stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Tech Stocks Hedge Funds Prefer Over Nvidia
10. Expedia Group, Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders: 87
Expedia Group, Inc. (NASDAQ:EXPE) is placed tenth on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA). The company owns and runs an online platform that caters to the different needs of travelers. It is headquartered in Washington.
On September 13, investment advisory Goldman Sachs initiated coverage of Expedia Group, Inc. (NASDAQ: EXPE) stock with a Buy rating and a price target of $185, noting the firm operates in an industry that has ample opportunity for secular revenue growth.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $5.9 billion in Expedia Group, Inc. (NASDAQ:EXPE), up from 86 in the previous quarter worth $6.1 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Expedia Group, Inc. (NASDAQ:EXPE) was one of them. Here is what the fund said:
“Several of our better performers in the first quarter were purchased while their business models were under stress from COVID restrictions or the macro environment the pandemic created. What gave us confidence in purchasing Expedia were the actions the company took to extend out their balance sheets until travel resumed. It should benefit as a broader vaccination rollout prompts cruise lines to resume operations and consumers to start traveling again and are positioned to deliver better margins and gain pricing power as the economy normalizes due to the cost controls implemented during the downturn.”
9. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 87
Thermo Fisher Scientific Inc. (NYSE:TMO) is ranked ninth on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA). The company operates in the life sciences tools and services industry and is headquartered in Massachusetts.
On September 23, investment advisory Goldman Sachs upgraded Thermo Fisher Scientific Inc. (NYSE:TMO) stock to Conviction Buy from Buy and raised the price target to $690 from $600, noting that the firm was organically building a “highly competitive” growth business.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $7.3 billion in Thermo Fisher Scientific Inc. (NYSE:TMO), up from 79 in the preceding quarter worth $6.2 billion.
Along with Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL), Thermo Fisher Scientific Inc. (NYSE:TMO) is one of the stocks attracting the attention of institutional investors.
In its Q2 2021 investor letter, DEVON Equity Management, an asset management firm, highlighted a few stocks and Thermo Fisher Scientific Inc. (NYSE:TMO) was one of them. Here is what the fund said:
“The broad response to the COVID pandemic from the healthcare, pharmaceutical, and life science industries has been nothing short of incredible.
Whilst Vaccine makers understandably garner the highest profile, Thermo Fisher (6.2% of NAV) should be considered one of the outstanding performers, reflected in their ‘COVID related revenue’ hitting US$9.4bn in the 12 months since March 2020 (we appreciate measuring ‘contribution’ to the pandemic by ‘dollars’ generated is a little crude – but ultimately it does tell us something).
Ever the short-termist, Mr Market has looked to the inevitable slowdown in COVID related revenue uneasily – questioning whether it might mean a decline in Earnings come 2022. These concerns resulted in TMO shares declining 5% since their November 2020 peak, the worst performer of our Top 10 holdings.
Fortunately, we look at the COVID dynamic for Thermo in the diametrically opposite fashion.
We think Thermo’s response to COVID has bolstered their competitive positon in multiple verticals, and meaningfully enhanced the long term earnings potential of the company:
Firstly, Thermo came from ‘also-ran’ to leading player in diagnostic testing in 6 months. In ordinary times, this might be expected to take 5+ years. As demand for COVID testing inevitably declines, the capacity Thermo built during 2020 will be filled with demand from non-COVID diagnostic tests, a fast growing area before the pandemic with improved prospects in light of the role testing is playing in the COVID response.
Secondly, Thermo invested heavily…”[read the entire letter here]
8. Square, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 94
Square, Inc. (NYSE:SQ) is a California-based payments technology company. It is placed eighth on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA).
On September 15, investment advisory Evercore ISI maintained an Outperform rating on Square, Inc. (NYSE:SQ) stock raised the price target to $371 from $361, underlining that the company had a stronger growth profile in light of a recent acquisition.
At the end of the second quarter of 2021, 94 hedge funds in the database of Insider Monkey held stakes worth $10 billion in Square, Inc. (NYSE:SQ), up from 92 the preceding quarter worth $9 billion.
In addition to Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL), Square, Inc. (NYSE:SQ) is one of the stocks attracting the attention of elite investors.
In its Q1 2021 investor letter, RiverPark Funds, an asset management firm, highlighted a few stocks and Square, Inc. (NYSE:SQ) was one of them. Here is what the fund said:
“We established a position in leading Financial Technology provider Square during the quarter. Through one integrated system, SQ is a hybrid of two businesses: its Seller Business (charging small and medium-sized businesses about 3% for transaction payment processing, plus other services such as instant funds access, and software for everything from customer engagement to payroll), and its Cash App (originally for person-to-person cash transfers and now a growing digital financial services provider for consumers).
The combined business has grown gross profit at a 37% CAGR over the past five years to $2.7 billion (due to pass through costs, gross profit is more reflective of top-line growth) and we believe that the company has an enormous long-term runway, as it has less than a 2% share of a more than $160 billion market. It is our view that the company’s Cash App (which has grown
from nothing in 2015 to $1.2 billion gross profit last year) has a particularly large opportunity with its powerful ecosystem of digital financial services including digital wallets, direct deposits, stock trading, bitcoin trading, and business and tax services, which are all relatively new. The vast majority of Cash App’s more than 36 million users are younger and, importantly, are willing to replace their bank and other financial services accounts with the app.
We estimate that the company can grow its gross profit more than 30% and EBITDA more than 50% annually for the foreseeable future, and while most of the company’s current profit is from its Seller Business, we believe most of Square’s future value will be from its Cash App business.”
7. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 104
Sea Limited (NYSE:SE) is a Singapore-based company with interests in the digital entertainment, ecommerce, and financial technology businesses. It is ranked seventh on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA).
On September 15, investment advisory Stifel upgraded Sea Limited (NYSE:SE) stock to Buy from Hold and raised the price target to $400 from $325, noting that the firm was an industry leader in the ecommerce and gaming businesses.
At the end of the second quarter of 2021, 104 hedge funds in the database of Insider Monkey held stakes worth $12.2 billion in Sea Limited (NYSE:SE), up from 98 the preceding quarter worth $10.4 billion.
In its Q4 2020 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:
“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.
A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.
Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).
For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and
Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)
I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!
Part of this stems from the fact that Shopee..”[read the entire letter here]
6. Salesforce.com, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 108
Salesforce.com, Inc. (NYSE:CRM) is placed sixth on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA). The firm develops and sells enterprise cloud computing solutions and is headquartered in California.
On September 24, investment advisory RBC Capital maintained an Outperform rating on Salesforce.com, Inc. (NYSE:CRM) stock and raised the price target to $325 from $310, noting that the firm had a market leadership position in multiple areas.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Salesforce.com, Inc. (NYSE:CRM) with 13.4 million shares worth more than $3.2 billion.
Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL) are some of the best stocks on the market presently, alongside Salesforce.com, Inc. (NYSE:CRM).
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Salesforce.com, Inc. (NYSE:CRM) was one of them. Here is what the fund said:
“We added to our software-as-a-service (SaaS) exposure with the initiation of SaaS leader salesforce.com, which develops software for customer relationship management (we added Workday, which enterprise resource planning applications, last quarter). Saleforce.com is well-positioned in the most attractive end markets in software and will benefit from secular drivers such as remote work and the digital transformation. Salesforce.com is a sustainability leader as well, with a commitment to carbon-neutral cloud, toward which it has set a goal of 100% renewable energy for global operations by fiscal year 2022. The company has a strong focus on equality, in terms of equal rights, pay, education and opportunity. As a data company it has been leading on workforce disclosures and seeks to have 50% of its U.S. workforce made up of underrepresented groups by 2024.”
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Disclosure. None. 10 Tech Stocks Hedge Funds Prefer Over Nvidia is originally published on Insider Monkey.
