UBS warned that institutional portfolios will continue to underperform due to a lack of adequate investment in Nvidia and other winning technology companies. Strategist Patrick Palfrey told clients that large-cap managers own 4.4% of Nvidia, even though the artificial intelligence darling accounts for 6.6% of the S&P 500. Palfrey said this is the largest reduction in Nvidia’s history. Huang’s artificial intelligence chip maker is one of a handful of large technology companies (including Microsoft, Amazon and Apple) that have smaller positions in these managers’ portfolios than in the S&P 500. The company Alphabet is a notable exception to this trend. That’s costing investors, Palfrey said. In fact, Nvidia’s small holding alone, in relative terms, has reduced the agency’s average performance by 1.3 percentage points so far in 2024, he said. Worse, underweight Nvidia and other major tech stocks could cause more pain, the strategist said. Looking ahead, expectations for moderate economic growth and lower interest rates bode well for technology and other long-term growth areas of the market. He said big-cap tech stocks should see stronger earnings-per-share growth than the rest of the market in the coming quarters. As a result, “continued underweighting of tech+ stocks may remain a headwind for many portfolios,” Palfrey wrote to clients. Concerns about the future of artificial intelligence have weighed on Nvidia in recent months, with the chipmaker down about 12% from its all-time high in June and little changed in the third quarter. But Nvidia had a strong first half and remains nearly 150% ahead in 2024. The latest evidence emerged on Tuesday, with the S&P 500 hitting a record high, Nvidia shares rising 4% and CEO Jensen Huang temporarily completing a stock sale under a preset trading plan. NVDA YTD Mountain Nvidia, Year to Date
