If you haven't bought Nvidia stock yet, you're probably wishing you did. But ETFs can help you buy into the S&P 500 stock without risking too much if you're late to the Nvidia party.
AI has been a boon for Nvidia and its S&P 500 stock. The company designs chips and software that power many AI tools. With the runaway success of AI bots this year, Nvidia's shares are running too.
NVDA shares are up more than 160% this year. Nvidia is now worth more than $1 trillion — hitting that threshold even before Warren Buffett's Berkshire Hathaway.
Nvidia stock's amazing surge may spark many investors who don't already own it to find a way to buy in. ETFs are a way to own Nvidia while spreading out the risk.
"Nvidia's recent success has investors seeking exposure but with diversification benefits," said Todd Rosenbluth, director of research at VettaFi.
What's Lighting Up Nvidia Stock In The S&P 500
Why is Nvidia suddenly the hottest stock in the Nasdaq 100? It comes down to two letters: AI. Nvidia's powerful chips are well-suited to drive artificial intelligence systems, which are now proliferating.
The company's guidance for growth, largely due to AI, is off the charts. Analysts now think the company will earn $7.76 a share this fiscal year ended in January 2024, up 132% from the previous year, says S&P Global Market Intelligence.
And even that forecast may prove too conservative. But Nvidia stock is now far from undiscovered. Shares are trading for more than 200 times the company's adjusted profit of the past 12 months. Such a high valuation requires the company to execute flawlessly. Analysts are mostly bullish, though.
"We believe Nvidia's accelerated computing (chips) stand out to be the biggest beneficiary in an AI-driven world and is the only way for cloud customers and (the) broader enterprise space to create successful large language models at this time," said CFRA analyst Angelo Zino.
But some investors may still want to spread their bets around, just to be safe.
Owning Nvidia With ETFs
By owning an ETF that holds a large stake in Nvidia, along with other related stocks, investors can reduce their risk.
One of the most logical ways to do this is by owning a semiconductor ETF, Rosenbluth says. The $8.7-billion-in-assets VanEck Semiconductor ETF is one way. The ETF puts more than 17% of its assets in Nvidia, the second highest concentration in the stock of any ETF, says ETF.com. That's well above Nvidia's 2% weight in the S&P 500.
"The company is widely held in semiconductor ETFs like SMH but alongside industry peers like Advanced Micro Devices, Broadcom and Taiwan Semiconductor," said Rosenbluth.
Nvidia is also a top holding in some thematic ETFs, too, like the tiny $19 million AXS Esoterica NextG Economy ETF. It owns other growth stocks like Amazon.com and Microsoft.
NVDA is also a position in artificial intelligence ETFs like Global X Artificial Intelligence & Technology, which also owns Salesforce, Tesla and Meta Platforms, Rosenbluth says.
Owning Nvidia in an ETF makes sense, according to Rosenbluth, as "the drivers of Nvidia's success likely will benefit other related companies, and using ETFs can help mitigate the company specific risks."
But there's also a warning. If the AI gold rush fizzles, the ETF won't protect you from that completely. And several of the ETFs with the largest positions in Nvidia are small, with $5 million or less in assets.
If Nvidia stock keeps soaring, though, ETFs will certainly benefit.
Nvidia Mania
ETFs with the highest exposure to Nvidia stock
| ETF | Symbol | Nvidia exposure | Fee | Assets (millions) | Year-to-date change |
|---|---|---|---|---|---|
| ProShares Ultra Semiconductors | 24.8% | 0.95% | $244.3 | 122.1% | |
| VanEck Semiconductor | 17.1% | 0.35% | 8,690 | 42.2% | |
| AXS Esoterica NextG Economy | 16.4% | 0.75% | 19.4 | 40.1% | |
| Simplify Volt RoboCar Disruption and Tech | 13.0% | 0.95% | 3.45 | 40.3% | |
| Pacer Data and Digital Revolution | 12.2% | 0.60% | 1.13 | 33.2% | |
| Global X Robotics & Artificial Intelligence | 11.9% | 0.69% | 1,990 | 32.7% | |
| VanEck Video Gaming and Esports | 11.8% | 0.56% | 283.7 | 22.7% | |
| Global X Metaverse | 11.8% | 0.50% | 2.3 | 27.7% | |
| Roundhill Ball Metaverse | 11.7% | 0.59% | 461.5 | 36.8% | |
| Spear Alpha | 11.3% | 0.75% | 4.6 | 47.4% |
Sources: ETF.com, S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
