Shulou(Shulou.com)11/24 Report--

According to news in the morning of June 8, Beijing time, large fund managers who had missed the Nvidia rally have been catching up and hoarding their shares over the past two weeks. Nvidia has become the first choice for investors to bet on the AI industry.

State Street, Fidelity, Amundi, Ameriprise's Columbia Threadneedle and Loomis Sayles all reduced their holdings in Nvidia in the first quarter of this year, but Nvidia's subsequent strong rebound pushed its market capitalization above $1,000bn, according to US securities filings.

Goldman Sachs analysis shows that these large fund companies are not alone: in early 2023, public funds generally reduced their exposure to Nvidia, and Nvidia became one of the lowest-allocated stocks of these public funds.

But traders at Wall Street banks say fund managers are buying up Nvidia again. Public funds and hedge funds have been scrambling to increase their holdings in Nvidia and other growth stocks related to the AI industry, such as AMD and semiconductor ETF funds.

"A lot of people underestimate the room for growth beyond 2022," said Brian Bost, co-head of equity derivatives at Barclays Americas. "but at this moment, a lot of people are being forced into this market."

Such popularity has pushed up Nvidia's share price. Nvidia shares jumped from $305 to a high of $419 after reporting strong quarterly earnings and future performance prospects on May 24. Nvidia said that the market for generative AI has a strong demand for chips.

Traders point out that few investors have sold Nvidia shares, which means the volume of a single transaction is small. The daily trading volume of Nvidia shares has doubled to an average of $32 billion, but trading services say they are unable to meet demand on many trading days.

Nvidia's shares have fallen since then, closing at $374.75 on Wednesday. Wall Street traders said this showed that demand for Nvidia shares had been temporarily met.

Traders also say that many funds buy Nvidia shares through procedures and use algorithms to guide buying operations. "I've never seen such a change in operational guidelines," said one technology trader. "after Nvidia released the latest data, people calculated that it became the stock they had to hold."

Technology stocks account for a smaller share of many public funds than their weighting in the S & P 500. The s & p 500 is a common benchmark for measuring the performance of fund managers, and Nvidia currently weighs 2.7 per cent of the index, up from 1.1 per cent at the end of 2022.

Many fund managers choose to reduce their holdings of technology stocks, mainly because they want to avoid concentrating their investments on individual companies. However, the underallocation of technology stocks has also led to the relative poor performance of these funds.

According to Goldman Sachs, the problem for growth equity funds has been serious because the seven largest companies in the Russell 1000 growth index, including Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta, have a combined weighting of 42 per cent.

Stuart Kaiser, head of US equity trading strategy at Citigroup, said the recent sharp rise in technology stocks "made people feel a little uneasy, but no one wants to miss it".

Even big hedge funds have to turn quickly. As of the end of March, three major Wall Street brokerages trading with hedge funds, including JPMorgan Chase, Bank of America and Morgan Stanley, were among the top 10 investors in Nvidia. Last quarter, only one investment bank was such a big holder.

From Wall Street's point of view, the level of brokerage positions is a rough indicator of hedge fund positions. Brokerages often provide stock exposure to hedge funds through stock swaps, in which brokers buy underlying securities and create derivatives contracts that reflect the rise and fall of stocks.

The head of trading services said several large hedge funds had cut their positions in the weeks leading up to May 24, hoping to lock in profits after Nvidia's shares more than doubled since the end of last year. However, the rebound in share prices prompted the fund to buy again after Nvidia issued new guidelines.

Akshay Narayanan, head of stock options trading at proprietary trading firm Optiver, said that in another derivatives trade, investors can buy put options on Nvidia before the company's results are announced. If Nvidia shares fall below a given level on a certain date, put options will be rewarded.

Since May 24, however, investors have traded more call options. "people are asking,'is this valuation a little too high and is the sharp rise in share prices speculative? but the earnings data can provide more substance. Now investors are asking, is growth enough?"

Traders expect recent volatility to continue. Option prices suggest that traders expect Nvidia's share price to fluctuate twice as much as normal before and after the next quarterly earnings announcement. Traders also predict that Nvidia's share price will also fluctuate when AMD holds events such as "AI Technology Premiere".

Fidelity, State Street, Amundi, Ameriprise and Columbia Threadneedle all declined to comment. Loomis Sayles said its investment teams held 1150 million shares of Nvidia shares, the vast majority of which were growth strategies and "long-term holders of the stock".

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