by Eric Platt and Nicholas Megaw in New York (YESTERDAY)

Big money managers missed out on the rally in Nvidia and spent the past two weeks catching up, racing to amass shares of the US company that has become a go-to bet on artificial intelligence.

State Street, Fidelity, Amundi, Ameriprise’s Columbia Threadneedle and Loomis Sayles all cut positions in Nvidia in the first quarter of 2023 before a powerful rally pushed the chipmaker’s valuation to $1tn, securities filings showed. An analysis by Goldman Sachs shows they were far from alone: mutual funds were broadly reducing exposure to Nvidia in early 2023, making the stock one of their most underweight positions.

But fund managers have been loading up again, according to interviews with traders at Wall Street banks. Mutual funds and hedge funds have been scrambling to top up their positions in Nvidia, other AI-linked growth stocks such as Advanced Micro Devices and semiconductor exchange traded funds.

“A lot of people were underweight the growth space in general after 2022,” said Brian Bost, co-head of equity derivatives for the Americas at Barclays. But now, he said, “we’re at a point where a lot of people are being forced into the market”.

That has helped support Nvidia’s stock price, which sprang from $305 a share to a high of $419 after the company reported strong earnings and issued bumper revenue guidance on May 24, citing demand for chips used in generative AI.

Traders noted purchases were met by a dearth of willing sellers of Nvidia stock, meaning many deals consisted of relatively small lots. Daily volumes more than doubled to average $32bn, but trading desks said on some days they could not satiate demand.

The stock has since come off its highs, closing at $386.54 on Tuesday, which Wall Street traders said indicated demand has been satisfied for the time being.



Many funds bought up Nvidia stock programmatically, using algorithms to help guide their purchases, traders said.

“I haven’t seen a guidance change like that ever, frankly,” said one tech trader at a Wall Street bank, adding that after the company published its latest figures, “people do the math and it becomes something [they] have to own . . . the chase [was] on”.

Tech stocks occupied relatively small positions in many mutual funds compared to their weightings in the S&P 500 index, the benchmark that is used to judge the performance of many managers. Nvidia now makes up 2.7 per cent of the S&P 500, climbing from 1.1 per cent at the end of 2022.

Many fund managers have chosen to keep tech holdings light for reasons that include avoiding concentrated bets on individual companies. But being underweight has led to relative underperformance.

The problem has been acute for growth stock funds, given that the seven largest names in the Russell 1000 growth index — Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta — account for a staggering 42 per cent of it, according to Goldman.



Stuart Kaiser, head of US equity trading strategy at Citi, said tech stocks’ dramatic recent rises “made people a little uncomfortable . . . but nobody wants to miss out on it”.

Traders said buying was broad-based, lacking the fingerprint of big trades put on by a single participant such as family office Archegos Capital Management, which shook markets when it collapsed in 2021. The armies of retail traders who once organised on social media to buy stocks are not as visible now.

Even big hedge funds have had to pivot quickly.

Three Wall Street prime brokers that trade with hedge funds — JPMorgan Chase, Bank of America and Morgan Stanley — all ranked as top-10 Nvidia investors at the end of March. The previous quarter, just one investment bank was such a large holder.

Wall Street views such broker holdings as a rough proxy for hedge fund positions. Brokers regularly provide hedge funds exposure to stocks through equity swaps, where the broker buys the underlying security and enters into derivatives contracts that mirror a stock’s rise or fall.

Several large hedge funds had cut positions in Nvidia in the weeks before May 24, hoping to lock in profits after the stock had more than doubled since the end of last year, according to trading desk heads.

But the rally that followed the company’s new guidance prompted funds to dive right back in.

In another type of derivatives trade, investors were buying put options on Nvidia before its results, said Akshay Narayanan, head of equity options trading at Optiver, a proprietary trading firm. Put options pay out if a security’s price falls below a given level by a certain date.

But since May 24, investors have traded more bullish call options.

“People were asking ‘is this valuation a bit stretched, was a lot of this share price run-up quite speculative?’” Narayanan said. “But the earnings were able to provide a lot more substance . . . now [investors] are asking if the uptick is enough.”



Traders expect recent volatility to continue. Options prices indicate traders expect twice the normal stock price swing around the date of Nvidia’s next quarterly results. Traders are also predicting swings around events such as AMD’s upcoming “AI Technology Premiere”.

Fidelity, State Street, Amundi, Ameriprise and Columbia Threadneedle declined to comment. Loomis Sayles said it owned 11.5mn shares of Nvidia across several investment teams, with the vast majority in growth strategies that are “a long-term holder of the stock”.