Nvidia 'Valuation Isn't Exactly Attractive,' Say ESG Fund Managers Despite Big Bets Last Year: '...Portends A Bubble, Potentially'

The surging stock of NVIDIA Corp NVDA has sparked concerns about a potential bubble among ESG fund managers. The managers, who reaped significant gains from the stock, are now wary of its sustainability.

What Happened: The proportion of ESG funds holding Nvidia shares dropped to 15% at the end of December from a high of 20% in the second quarter of 2023, reported Bloomberg. This decline in exposure has raised concerns among ESG fund managers, who had previously outperformed the market by investing heavily in Nvidia.

One such manager is Kristofer Barrett, who made Nvidia the largest holding in the Swedbank Robur Technology fund, leading it to become the top-performing ESG fund in 2023. Despite his long-term optimism, Barrett acknowledges that Nvidia’s valuation is a concern.

"I'm optimistic in the long run, but recognize that the valuation isn't exactly attractive," said Barrett.

“There's a realization that this has become a retail stock… And that portends a bubble, potentially.”

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Despite the drop in ESG fund exposure, Nvidia’s market value rose by 17% in the same period. The company’s market value soared by almost 240% last year and is already up by nearly 80% in 2024. None of the 66 analysts tracking Nvidia are advising clients to sell, and 60 recommend buying the shares, according to the report.

Why It Matters: The concerns raised by ESG fund managers align with recent warnings about a potential bubble in tech stocks, including Nvidia. Renowned finance professor Jeremy Siegel recently cautioned that the current enthusiasm for tech stocks might be a sign of an impending bubble.

However, some experts argue that the current tech rally is not a bubble. Ryan Detrick, the chief market strategist at Carson Group, pointed out that Nvidia’s earnings have surged by over 250% since early 2022, while the company's multiple has only expanded slightly more than 100%.

Despite the bubble concerns, prominent hedge fund manager Dan Niles recently disclosed Nvidia as one of his top stock picks for 2024. He believes that the earnings potential of Nvidia and other big tech firms will drive their stock performance in 2024.

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