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5 ETFs to Tap the Hot NVIDIA

Sweta Killa

NVIDIA NVDA has been grabbing investors’ attention this week as the stock regained its last year’s momentum and is scaling new record highs. Notably, the stock soared 23% following its blowout Q1 2018 earnings results on May 9, sending the market capitalization of NVDA over $75 billion for the first time.

With this, NVIDIA is approaching faster to fill the gaps created by chip giants like Qualcomm QCOM and Texas Instruments TXN having market capitalization of nearly $80 billion each. Overall, the videogame-gear specialist has given whopping returns of 208.3% over the past one year, crushing the Zacks categorized Semiconductor-General industry’s return of 48.4% (read: Will Chip ETFs Continue Their Solid Run As Q1 Unfolds?).  



Inside The Surge

The graphics chipmaker topped our earnings estimate by 24.24% and revenue estimate by 1.39%. On a year-over-year basis, earnings and revenues increased 85% and 48%, respectively. The impressive performance was primarily driven by booming datacenter business, which tripled in the quarter and swept away fears over the decelerating gaming business.

For the second quarter of fiscal 2018, NVIDIA expects revenues of approximately $1.95 billion (+/-2%). The Zacks Consensus Estimate at the time of earnings release was pegged at $1.893 billion (read: 5 Reasons to Bottom Fish Semiconductor ETFs).

NVIDIA is at the forefront of the artificial intelligence (AI) revolution with its combination of deep learning, software algorithms and powerful GPUs (graphics processing units). As per Jensen Huang, Nvidia’s chief executive, “Nvidia’s GPU deep learning platform is the instrument of choice for researchers, internet giants and startups as they invent the future.”

Almost all the major computing service providers, including Amazon AMZN, Facebook FB, Alphabet GOOGL, International Business Machines IBM, Microsoft MSFT, Alibaba BABA, Baidu BIDU and Tencent TCEHY are using Nvidia GPUs. This is helping the company to rapidly capture the data center market.

Additionally, the company’s GPU deep learning computer chips have applications in self-driving cars as well. Tesla TSLA is among one of them that uses the company’s Drive PX 2 open AI platform in its self-driving car technology. The chipmaker also strikes a deal with auto supplier Bosch and Japanese carmaker Toyota Motors TM on self-driving cars (read: Ride on Surging Tesla With These ETFs).

With exceptional growth in its AI revolution, it wouldn’t be surprising if the graphics chipmaker soon become the industry leader. All these have raised a wave of optimism about the company with many analysts raising their target price on the stock.

Currently, NVIDIA has a Zacks Rank #3 (Hold) with a VGM Style Score of C and has a solid Zacks Industry Rank (in the top 15%).

ETFs to Buy

Given the bullishness, investors should definitely ride the surge in a basket form. Below are five ETFs with the highest allocation to this graphics chipmaker that could make a compelling play at least in the near term.

iShares PHLX Semiconductor ETF SOXX

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 U.S. firms. Out of these, NVDA takes the top spot with 8.8% allocation. The fund has amassed $977.7 million in its asset base and trades in volume of around 501,000 shares a day. It charges a fee of 47 bps a year. The fund has a Zacks Rank of 1 or ‘Strong Buy’ rating with a High risk outlook.

ARK Industrial Innovation ETF ARKQ

This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research related to robotics, energy storage, innovative materials, alternative energy sources, infrastructure development, space exploration, autonomous vehicles and 3D printing. This approach results in a basket of 38 stocks, with NVIDIA occupying the third position with 7% share. The product has accumulated $43.2 million in its asset base and charges 75 bps in fees per year. It sees a paltry volume of about 10,000 shares a day (read: 6 Hot ETF Charts of Q1 Earnings Season).

VanEck Vectors Semiconductor ETF SMH

This is one of the popular and liquid ETFs in the semiconductor space with AUM of $760.4 million and average daily volume of more than 2.3 million shares. The fund provides exposure to 26 global securities by tracking the MVIS US Listed Semiconductor 25 Index. NVIDIA occupies the fifth position with 5.1% of assets. While U.S. firms dominate the fund’s holdings with 76.9% assets, Taiwan (12.3%), the Netherlands (9.2%) and Bermuda (1.5%) round off the top four in terms of country exposure. The fund charges an expense ratio of 0.36%. It has a Zacks Rank of 1 with a High risk outlook.

PowerShares Dynamic Semiconductors Fund PSI

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in the basket. NVIDIA occupies the second position and makes up for 5.7% share in the basket. PSI has lower AUM of $253 million and sees a modest average daily volume of about 64,000 shares. It charges higher 63 bps in annual fees and has a Zacks Rank of 1 with a High risk outlook (read: Trump Nearing 100 Days in Office: ETF Winners & Losers).

Huntington EcoLogical Strategy ETF HECO

This is an actively managed ETF that offers exposure to ecologically focused companies that have positioned their business to respond to increased environmental legislation, cultural shifts toward environmentally conscious consumption, and capital investments in environmentally oriented projects. It holds 43 stocks in its basket with NVIDIA taking the top spot at 4.1% of assets. Expense ratio comes in at 0.95%. The fund has AUM of $7.7 million and trades in a paltry volume of under 1,000 shares.

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