The tech sector has continued its momentum since 2023, and a rising star from last year is advancing into 2024. In early February, Nvidia overtook Amazon and Alphabet to become the third-largest publicly traded U.S. company by market capitalization.
Last week, after announcing quarterly earnings and forward-looking guidance on Feb. 21, the company added $272 billion in value the next day — the largest single-day gain ever for a publicly traded company. As a result, NVDA shares rose nearly 20% from Wednesday’s market close to Friday morning’s market open and are up nearly 64% this year.
The technology company, previously known for its graphics processing units and data center services, is at the forefront of the latest technological frontier: artificial intelligence (AI). Demand for its AI-focused products and corporate AI bootcamp is skyrocketing, producing another revenue stream for the $2.01 trillion company.
But with shares now trading around $800 and no sign of slowing down, many everyday investors may feel left out of investing. How, then, can retail investors get into Nvidia stock without putting all their eggs in one very expensive basket? One option is to invest in index funds that include exposure to NVDA (and a number of other stocks), with less risk than buying shares of a single company.
Why is Nvidia stock rising?
Since going public in 1999, Nvidia stock remained a cheap tech stock, trading for less than $50 a share, until 2017. Since then, it, along with many other tech stocks, has exploded thanks to the reemergence of IT sector as the largest growth opportunity in the S&P index. 500. Of the index’s 11 sectors, technology has topped the list five out of seven years since 2017.
However, the overall industry’s recent growth pales in comparison to NVDA’s gains in just the past year. That’s because in March 2023, the company released its H100 processor, a highly regarded piece of AI hardware that has already sold over 500,000 units, including sales to competitors Meta and Microsoft. And while that product retails for a whopping $30,000, the company has also begun rolling out its consumer-grade AI processors in early 2024.
Growing praise for AI from investors and users, combined with Nvidia’s role as the creator of the most cutting-edge AI processors on the market, have fueled gains of 263.75% for the company’s shares over the past 12 months. Naturally, investors are looking for ways to profit from the growing success of NVDA stock and should consider index funds as their friends.
For the everyday retail investor, NVDA’s high sticker price can complicate investment plans. Many who want to get in on the action can’t pay the thousands of dollars needed to add more shares to their portfolios. This is where index funds and fractional stocks come into play.
Index funds pool investors’ assets and attempt to mirror the performance of an underlying benchmark, such as the S&P 500 Index. In this way, investors gain exposure to a variety of stocks in a single investment vehicle without having to purchase individual stocks. shares and pay their high share prices. Index fund shares can be purchased on the stock market just like NVDA shares, making the transaction simple.
There are hundreds of index funds to choose from, many of which have NVDA among their top holdings. That’s because index funds are often market-weighted, meaning they allocate investors’ funds proportionately to the best-performing stocks in the underlying benchmark they seek to mirror.
The SPDR Portfolio S&P 500 ETF (SPLG), for example, holds more than 1.8 million shares of NVDA and trades around $60 per share. Plus, it carries an expense ratio that at 0.02% is 77% lower than the S&P 500’s most popular index fund, the SPDR S&P 500 ETF Trust (SPY), meaning investors will pay much lower fees while saving hundreds on each share. cost basis and gaining exposure to identical holdings.
There are many other options for funds that contain NVDA but with slightly different weightings. Take for example the Vanguard S&P 500 ETF (VOO) or the iShares Core S&P 500 ETF (IVV); these funds have similarly low expense ratios compared to SPLG, also making them affordable alternatives to SPY, which has an expense ratio of 0.09%.
Some investors may already hold index funds in their portfolios, but still want to hold Nvidia directly despite its high stock price. This, too, is possible thanks to fractional shares, which is what they sound like: investments that represent only a portion of an equity stake. Today, many brokerages offer fractional shares in expensive stocks like NVDA, allowing investors to gain exposure without shelling out $800 per share without requiring them to take on all the capital. other positions in an index fund if it is not desired.
What is the future of Nvidia stock?
There are never certainties on the market. But most experts expect NVDA stock to continue its bullish trajectory in the coming months, especially given the belief that artificial intelligence is not a hype-induced bubble but an emerging and permanent technology segment.
“AI is a transformative technological shift that will enable businesses and economies to do more with less, which means working faster with the same infrastructure,” says James Demmert, chief investment officer at Main Street Research. “It’s a very exciting sea that will likely create a super cycle of growth, profits and stock prices over the next few years. Nvidia is at the center of it all.”
Demmert reminds investors that Nvidia was getting hot even without the AI hype. In 2021, before Nvidia released its latest AI processors and before the tech market started going wild over the technology, NVDA shares were trading at $330. “The world has changed since then and there is significant demand for artificial intelligence, so Nvidia has much more room to run,” he says.
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