We recently compiled a list of the 35 AI superstars according to Goldman Sachs. In this article, we’ll take a look at where NVIDIA Corporation (NASDAQ:NVDA) ranks among the other AI superstars according to Goldman Sachs.
US tech stocks have risen dramatically this year, driven in large part by growing excitement around generative artificial intelligence (AI). However, according to research by investment company Goldman Sachs, this increase is not indicative of a financial bubble like those of the past. The performance of these companies is expected to continue to deliver solid returns for investors, fueled by the rise of AI superstars beyond the Seven Magnificent Companies, among smaller tech companies and also in non-tech sectors. However, Peter Oppenheimer, head of the bank’s global equity strategy and head of macro research in Europe, has advised investors to diversify their portfolios to manage risks.
While technology stocks have been dominant, contributing 32% of global stock returns and 40% of US stock returns since 2010, these returns are underpinned by strong financial fundamentals rather than speculative bubbles. Earnings per share for the technology sector have risen 400% since their pre-financial crisis peak of 2008, far outpacing other sectors, which together saw only a 25% increase. A major driver of the outsized returns in recent years has been a small group of hyperscale companies, especially those in software and cloud computing. These companies have leveraged their vast resources and high profitability to dominate the market, with recent performance rising even further due to optimism around AI.
Read more about these developments by visiting 30 Top AI Stocks According to BlackRock And Beyond the Tech Giants: 35 Non-Technical AI Possibilities.
This has led to rising valuations, largely concentrated among a small group of market leaders. Peter Oppenheimer notes that this pattern reflects historical trends in technological innovation. From the construction of canals in the 18th century to the adoption of the telephone, new technologies often attract a lot of capital and competition. While this does not always lead to financial bubbles, there is usually a period where prices fall as competition increases, ultimately leading to market consolidation. Over time, only a few large companies remain dominant, while growth shifts to secondary innovations that build on the original technology. The AI era is unique because the dominant companies that are leaders in AI also led the previous wave of technology – especially in software and cloud services.
Their size and profitability make them well positioned to absorb the high costs of AI investments. However, Oppenheimer notes that new competitors are emerging. The number of AI patents skyrocketed to over 60,000 in 2022, up from around 8,000 just four years earlier, indicating that AI is following the typical pattern of large-scale capital growth and competition. Oppenheimer also points out that the companies that pioneer a new technology are not always the ones that will create the most value from it in the long term. For example, during the Internet boom, telecom companies received significant investment, yet it was companies such as those in social media and ride-sharing that took advantage of the Internet infrastructure and saw the greatest success. Likewise, as AI evolves, new companies could emerge as the next wave of tech superstars, reshaping industries beyond the current giants.
Now let’s take a look at the list of 35 AI superstars who are on the big bank’s radar. We compiled this list after consulting a bank report on the AI industry. These stocks are also popular among elite hedge funds, and hedge fund sentiment is a key indicator that we pay close attention to at Insider Monkey.
Why are we interested in the stocks that hedge funds invest in? The reason is simple: our research shows that we can outperform the market by imitating the best stock picks from the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating the benchmark by 150 percentage points (see more details here).
A close-up of a colorful, high-end graphics card plugging into a gaming console.
NVIDIA Corporation (NASDAQ:NVDA)
Number of hedge fund holders: 179
NVIDIA Corporation (NASDAQ:NVDA) provides graphics, computing and networking solutions. William Blair analysts Sebastien Naji and Jason Ader recently released an investor note on the AI landscape, ranking the chipmaker among the top picks among major companies in generative artificial intelligence. The note detailed that the company had already seen tremendous growth for its GPU and parallel computing systems, and that there was time for further growth, driven by robust training demand from hyperscalers and enterprises, and an increasing opportunity for inference . According to the analysts, Nvidia had also created a sustainable moat, as the CUDA software stack was the standard interface for working with GPUs and AI, and there was room for growth in both training and inference as the new Blackwell cycle began.
NVIDIA Corporation (NASDAQ:NVDA) CEO Jensen Huang expects billions of dollars in revenue from Blackwell sales in the coming months. Blackwell is expected to cost between $30,000 and $40,000 per unit and is in demand by major companies like Microsoft and Meta, as well as other companies building AI data centers to power products like ChatGPT and Copilot. Huang recently called Blackwell’s question insane during an appearance on CNBC.
In short, NVDA is in 5th place on our list of AI superstars according to Goldman Sachs. While we recognize NVDA’s potential as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns in a shorter time frame. If you’re looking for an AI stock that’s more promising than NVDA but trades at less than five times earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.