Concerns that Nvidia Corp.’s stratospheric gains might be unsustainable have spread to ESG investment managers who beat the market last year by betting big on the stock.
“I’m optimistic in the long run, but recognize that the valuation isn’t exactly attractive,” said Kristofer Barrett, who oversaw a decision to make Nvidia the biggest holding in Swedbank Robur Technology last year, transforming it into the top performer in a Bloomberg ranking of ESG funds. The Swedbank fund, which is registered as “promoting” environmental, social and governance metrics under European Union rules, returned 53% in 2023.
But there’s now some concern that Nvidia may end up a victim of its own success, according to Barrett.
There’s a “realization that this has become a retail stock,” he said. “And that portends a bubble, potentially.”
Overall, the proportion of ESG funds holding Nvidia shares dropped to 15% of the total at the end of December from a high of 20% in the second quarter of 2023, according to fresh data provided by Morningstar Direct.
The figures, which cover equity-oriented open-end and exchange-traded funds that satisfy Morningstar’s ESG criteria, show that the value of those funds’ exposure to Nvidia was roughly $17.6 billion at the end of last year, down about 10% from the middle of 2023. In the same period, Nvidia’s market value rose 17%.
Nvidia enthusiasts point to its iron grip on the chips needed to develop artificial intelligence, after Chief Executive Officer Jensen Huang managed to turn a niche maker of graphics cards for gamers into a $2 trillion technology colossus. And so far, warnings of a sudden downturn in Nvidia shares have generally been followed by eye-popping gains.
Last year, Nvidia’s market value soared almost 240%, and is already up almost 80% in 2024. Of the 66 analysts tracking Nvidia, none is advising clients to sell, while 60 say investors should continue to buy the shares, according to data compiled by Bloomberg.
ESG funds betting big on Nvidia are delivering better returns than their peers. Among these is the Robecosam Net Zero 2050 Climate Equities fund, which is registered under the EU’s strictest ESG disclosure rules. Chris Berkouwer, who manages the Robeco fund, says Nvidia is treated as a “transition facilitator” in his portfolio, based on a view that its technology will help companies across industries cut their environmental footprints.
The $150 million fund is up about 7% in the past month, outperforming more than 90% of its peers, Bloomberg data show. Berkouwer said there are 30 stocks on which the Robeco fund is more overweight than it is on Nvidia, even though it’s among the biggest holdings in absolute terms.
“We’re still quite optimistic on Nvidia,” said Berkouwer. Nvidia’s latest quarterly results, which the company used to deliver a sales forecast that once again surpassed analyst estimates, has “kept the AI dream alive,” he said.
Read the full article here by Natasha White of Bloomberg News, Advisor Perspectives
