Nvidia might not be Wall Street’s favorite AI stock anymore – Morningstar

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By Mark Hulbert

My monthly report on stocks and funds popular among top performing investment newsletters

The bloom is starting to come off of Nvidia Corp.’s (NVDA) rose, though few on Wall Street are willing to say so publicly.

There’s been an unmistakable trend on Wall Street toward more analysts being willing to speculate about which AI stock(s) will emerge as the new standard-bearer of the industry.

One straw in the wind that the tide may be shifting is the dramatic reversal day Nvidia’s stock suffered this past Friday, March 8. After surging more than 5% early in the trading session, it ended the day more than 5% lower. A one-day reversal of more than 10 percentage points is reminiscent of those that frequently occurred at or near the top of the Internet bubble in March 2000.

Read: Alphabet is the bargain stock among the ‘Magnificent Seven’

Another straw in the wind is that Nvidia no longer is the most popular AI stock among the market-beating investments newsletters my auditing firm monitors. (I constructed this subset of newsletters to include those that beat the Wilshire 5000 total-return index over the entire period that auditing data are available.)

Nvidia’s stock in fact has slipped to being tied for fourth place-tied with nine other stocks. The most popular AI stock currently is Apple (AAPL), with three market-beating newsletters currently recommending it for purchase. Tied for second, with two newsletters each recommending them, are Meta Platforms (META) and Microsoft (MSFT).

The nine stocks that are tied with Nvidia for fourth most-recommended among these market-beating newsletters are:

Alphabet GOOGL Amazon AMZN Ametek AMEIntel INTC Lattice Semiconductor LSCC Netflix NFLX Oracle ORCLQualcomm QCOM Texas Instruments TXN

Yet another sign that Nvidia is no longer the apple of advisers’ eyes is that there are 69 non-AI stocks that are more popular among the market-beating newsletters than Nvidia. The most popular of these 69 non-AI stocks, each recommended by three of these newsletters, are:

Allstate ALL Bristol-Myers Squibb BMY CVS Health CVS Comcast CMCSA Synchrony Financial SYF Tyson Foods TSN

Nvidia’s short-interest ratio

You might wonder why, if the bloom is coming off Nvidia’s rose, the stock’s short interest ratio remains so low. MarketWatch is reporting that just 1.17% of the stock’s float is currently sold short, which barely registers in the ranking of stocks with the highest short interest ratios; the stock at the top of that ranking has a short interest ratio of 75%, for example.

But there are reasons why traders may be wary of shorting Nvidia that have nothing to do with their beliefs about the stock’s vulnerability. These other reasons trace to what theorists refer to as the “limits of arbitrage;” one of the first studies to outline these limits was conducted several decades ago by Harvard’s Andrei Shleifer and the University of Chicago’s Robert Vishny. They argued that short sellers will avoid a stock, even one that is vulnerable to crashing, if it’s extremely volatile or subject to waves of investor exuberance.

These preconditions would certainly appear to apply to Nvidia.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected].

-Mark Hulbert

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03-11-24 1319ET

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