Image Source: Pixabay

In this episode of ETF Spotlight, I speak with Zacks Senior Stock Strategist, Kevin Cook, about NVIDIA (NVDA - Free Report), arguably the most important company in the world right now, and some ETFs that investors could use to capitalize on its earnings.

The AI chip giant is set to report its earnings on May 22, and analysts are racing to raise their price targets ahead of the much-anticipated event.

At its GPU Technology Conference (GTC) in March, NVIDIA launched its next generation of AI chips. CEO Jensen Huang said that these significantly outperform the H100 systems that power generative AI services like ChatGPT.

Thanks to the surge in demand for its AI chips, NVIDIA's shares have risen more than 90% this year, following a nearly 240% increase in 2023. However, its valuation does not seem overstretched, as earnings are growing faster than its share price.

The stock is currently trading at about 38 times expected earnings, below its five-year median and those of many other chip stocks, including AMD (AMD - Free Report).

NVIDIA currently controls over 80% of the market for cutting-edge chips used to train and run large language models that underpin generative AI.

The largest tech companies, including Microsoft (MSFT - Free Report), Amazon (AMZN - Free Report), Alphabet (GOOGL - Free Report) and Meta Platforms (META - Free Report), currently account for more than 40% of NVIDIA's revenues.

While NVIDIA’s GPUs are unmatched for training AI models, chips from other companies like Intel (INTC - Free Report) and AMD can be used for inference after models are trained.

NVIDIA also appears to have a dominant position in the inference market, but it could face competition in the coming years. Additionally, large technology companies are designing their own chips, which could reduce their reliance on NVIDIA.

NVIDIA’s meteoric surge has drawn some investors to single-stock ETFs that aim to double its daily return. The GraniteShares 2x Long NVDA Daily ETF (NVDL - Free Report) has about $2 billion in assets, and the T-Rex 2X Long NVIDIA Daily Target ETF (NVDX - Free Report) has gathered about $360 million.

I think these instruments can be effectively used as short-term tactical trading tools before or after earnings. However, investors should remember that these products are not meant for buy-and-hold investing and should be used only by those who closely monitor their portfolios.

Running Length: 00:29:17

More By This Author:

AI's Insatiable Energy Needs Boost Uranium ETFs
How Trend-Following ETFs Are Beating The Market
3 Excellent ETFs For Your IRA