How To Profit From NVIDIA’s Big Run Using ETFs

nvidia stock

From Zacks: Last week, Nvidia (NVDA – Free Report) reported stronger-than-expected fiscal 2018 third-quarter results.

The company beat the Zacks Consensus Estimate for both the top and the bottom line and issued an upbeat guidance. This pushed NVDA shares up 2.5% in after-hours trading on elevated volume (read: 7 Top-Ranked Tech ETFs on Unstoppable Rally).

Q3 Earnings in Detail

Earnings per share came in at $1.33, crushing the Zacks Consensus Estimate of 94 cents and improving 60% from the year-ago quarter. Revenues climbed 32% year over year to $2.64 billion and edged past our estimate of $2.36 billion.

The performance was powered by a boom in the datacenter and gaming business lines. Datacenter revenues more than doubled to $501 million, while gaming sales increased 25% to $1.56 billion. Notably, gaming remains the company’s biggest moneymaker and the largest segment, accounting for 59% of total revenues.

For the fourth quarter of fiscal 2018, NVIDIA expects revenues of approximately $2.65 billion (+/-2%). The Zacks Consensus Estimate was pegged at $2.44 billion. Going into the holiday season, the videogame maker’s drive to launch new, sophisticated games is fueling demand for gaming GPUs or graphics processing units (read: Take-Two, Activision Pushes Videogame ETF Higher).

A Solid Growth Story

NVIDIA is at the forefront of the artificial intelligence (AI) revolution with its combination of deep learning, software algorithms and powerful GPUs. 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.” With exceptional growth in its AI revolution, it wouldn’t be surprising if the graphics chipmaker soon becomes the industry leader.

Additionally, the company is rapidly capturing the data center market as almost all the major computing service providers, including Amazon (AMZN – Free Report) , Facebook (FB – Free Report) , Alphabet (GOOGL – Free Report) , International Business Machines (IBM – Free Report) , Microsoft (MSFT – Free Report) , Alibaba (BABA – Free Report) , Baidu (BIDU – Free Report) and Tencent (TCEHY – Free Report) are using Nvidia GPUs.

Further, the graphic chipmaker has expanded its reach in automobiles for self-driving cars. Growing interest in cryptocurrency mining is also giving a boost to the company’s prospects (read: ETFs Riding High On Bitcoin Surge).

Currently, Nvidia has a Zacks Rank #2 (Buy). It has a Growth Style Score of B and a solid Zacks Industry Rank in the top 3%.

ETFs to Buy

Investors might want to capitalize on Nvidia’s growth and the upcoming surge in its share price with lesser risk in the form of ETFs. For these investors, we have highlighted five tech ETFs, with a higher allocation to this graphics chipmaker, which have the potential to be big movers in the coming days:

iShares PHLX Semiconductor ETF (SOXX – Free Report)

This ETF offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. Out of these, NVDA takes the third spot with 8.3% allocation. The fund has amassed $1.3 billion in its asset base and charges a fee of 48 bps a year. It trades in a solid volume of 484,000 shares and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Best ETFs & Stocks from October’s Top Performing Sector).

AdvisorShares New Tech and Media ETF FNG    

This is an actively managed ETF designed to invest in companies that are driving economic growth in the modern era, and can adapt to changing leadership by maintaining the ability to invest in the next generation of technology and media companies leading the equity markets. It seeks to provide a similar return stream to the performance of technology and media equity leaders as characterized by the FANG stocks acronym. This approach results in a basket of 25 stocks with Nvidia occupying the second position, holding 8.3%. FNG debuted in the space in July and has amassed $36.6 million in its asset base. It comes with a high expense ratio of 0.85%. Volume is light at 61,000 shares.

Global X Robotics & Artificial Intelligence ETF BOTZ

This product seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and AI, including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles. It tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index and holds 29 stocks in its basket with Nvidia taking the top position with 8.1% share. BOTZ has AUM of $1.2 billion and trades in average dialy volume of 715,000 shares. It charges 68 bps in annual fees (read: Inside the Rise of Thematic ETFs).

VanEck Vectors Semiconductor ETF (SMH – Free Report)

This is one of the popular and liquid ETFs in the semiconductor space with AUM of $1.3 billion and average daily volume of more than 3.2 million. The fund provides exposure to 26 global securities by tracking the MVIS US Listed Semiconductor 25 Index. NVIDIA occupies the third position with 5.6% of assets. While United States firms dominate the fund’s holdings with 78.5% assets, Taiwan (10.6%), the Netherlands (9.1%) and Bermuda (1.8%) round off the top four in terms of country exposure. The fund charges an expense ratio of 0.36%. It has a Zacks ETF Rank #1 with a High risk outlook.

PowerShares Dynamic Semiconductors Fund (PSI – Free Report)

This fund tracks the Dynamic Semiconductor Intellidex Index, which evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. It holds 30 securities in the basket, with NVIDIA occupying the fourth position, holding 5.1%. PSI has AUM of $385.3 million and charges 63 bps in annual fees. It trades in volume of 82,000 shares per day on average and has a Zacks ETF Rank #1 with a High risk outlook.

The iShares S&P NA Tec. Semi. Idx. Fd.ETF (SOXX) closed at $176.48 on Friday, up $1.16 (+0.66%). Year-to-date, SOXX has gained 44.54%, versus a 16.53% rise in the benchmark S&P 500 index during the same period.

SOXX currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #11 of 52 ETFs in the Technology Equities ETFs category.

This article is brought to you courtesy of Zacks Research.