Surprised? NVIDIA is the "most underappreciated" large-cap tech stock in the US
Morgan Stanley analysts pointed out that NVIDIA has become the "most underweight" large-cap tech stock—its weight in the S&P 500 is as high as 7.37%, while institutional holdings account for only 4.2%. This significant gap reflects caution among funds regarding its soaring stock price and geopolitical risks. However, historical experience shows that such underweight stocks often have the potential to surge, implying future performance potential
As the world's most valuable company and the "leader" in the AI concept, NVIDIA has surprisingly become the large-cap tech stock that institutional investors are least willing to "heavily invest" in?
Morgan Stanley's latest research shows that although NVIDIA has risen to become the world's most valuable company, the actual holdings of institutional investors are significantly lagging behind its market position. Analyst Erik Woodring pointed out in the research report that NVIDIA has now become the "most underweighted large-cap tech stock."
Data shows that NVIDIA's weight in the S&P 500 index has reached 7.37%, but its proportion in the average portfolio of institutional investors is only 4.2%, resulting in an adjusted underweight of as much as 2.41 percentage points. This gap ranks first among the 15 major tech companies tracked by Morgan Stanley.
Analysts believe that this disconnection between holdings and weight highlights NVIDIA's unique position. Although the stock has soared nearly 1300% over the past five years due to the AI boom, its rapid rise, along with geopolitical and supply chain-related risks, has made some investors cautious about significantly increasing their holdings.
Among other large-cap tech stocks tracked by Morgan Stanley, Microsoft, Apple, and Amazon also exhibit underweight phenomena, but to a lesser extent than NVIDIA. Microsoft is underweighted by 2.39 percentage points, Apple by 1.66 percentage points, and Amazon by 1.40 percentage points.
In contrast, institutional investors show an overweight position in certain tech stocks. Intuit is overweight by 0.83 percentage points, Oracle by 0.32 percentage points, and Dell by 0.25 percentage points.
Historical experience shows that underweighted stocks often perform better over time, as investors gradually increase their holdings to match their weight in the index. Analysts stated, "There is a statistically significant relationship between low active holdings and future stock price performance."
Fundamentals Remain Strong
Despite the underweight holdings, Morgan Stanley analysts remain optimistic about NVIDIA's fundamentals. The analysts wrote in the report:
The leading indicators of computing power demand remain exceptionally strong, with no signs of slowing down. As supply chain constraints for rack-level solutions gradually ease, and the U.S. government advances export license approvals to China, we continue to view NVIDIA as a quality asset in the current AI-dominated era.
NVIDIA's stock price has risen 35% over the past year, outperforming the S&P 500 index's approximately 10% increase. Market optimism is mainly driven by the demand for its graphics processing units (GPUs), which are widely used in AI and cloud enterprise applications.
However, not everyone agrees with the optimistic outlook for large-cap stocks. Torsten Sløk, chief economist at Apollo Management, previously stated that the current valuations of large-cap tech stocks and the overall index may be difficult to sustain, as the price-to-earnings ratios of the top ten companies in the S&P 500, including Meta and NVIDIA, have exceeded levels seen during the 1999 internet bubble
