2023 has been a strong year for the Nvidia (NASDAQ: NVDA) share price, with it up over 170%. And this impressive form continued in May as the stock rose by 30%.

Entering the month changing hands at $289 and sitting at $378 by the end of it, the artificial intelligence (AI) company that manufactures and designs computer hardware and software, predominantly graphic processing units (GPUs), has gained the attention of a host of investors in the last few weeks.

But what’s been the catalyst for this jump? And with its price soaring, is it too late for investors to buy the stock?

Impressive results

The main reason for the major spike in its share price was the release of its Q1 results. Revenue for the period was up 19% compared to Q4, with its Data Center seeing record revenue of over $4bn. On top of this, net income jumped a massive 44%.

However, arguably more important were the forecasts that the business issued within the results. For Q2, revenue is expected to be $11bn, representing a significant increase on the $7.2bn forecast by Wall Street.

The Nvidia share price rose over 25% in after-hours trading following the release of the results, highlighting the excitement surrounding the company. More widely, US equities also saw a spike on the back of the Silicon Valley-based firm’s rally.

Trillion dollar valuation

With its share price peaking at over $400 towards the tail end of May, Nvidia also spent a short period of time in the exclusive club of companies with a market capitalisation of over one trillion dollars. Joining the likes of Apple, Microsoft, Amazon, and Alphabet, the near $200bn added to its market value following its results made it one of the largest-ever single-day gains in US market history.

The firm is at the forefront of the AI revolution. And with the sector set to boom in the years ahead, it seems that many think that purchasing Nvidia stock is the smartest way to gain exposure to the industry.

Where next?

So, where will the stock head next? And does its impressive performance in May mean investors should be rushing to snap up some shares?

Well, there are a few concerns. Mainly, its valuation is extremely high. Its price-to-earnings ratio currently sits at a staggering 203. For many, this could be deemed excessive.

Furthermore, with its impressive growth, Nvidia may struggle to meet expectations in the years ahead.

Despite this, I like the look of Nvidia. Firstly, comparing it to peers, the stock is still cheaper than a host of competitors.

Also, I think there’s excellent long-term growth potential to be had with the firm. And this has been reinforced by a mass of analysts upgrading their target price for the stock. For example, JP Morgan analysts recently upped their target to $500, while analysts at Barclays have also raised their estimates to a similar price.

While concerns exist, I still deem Nvidia the best stock investors can purchase right now to gain access to the growing industry. Should I have spare cash in the weeks and months ahead, I’ll most certainly be looking to open a position.

The post Here’s why the Nvidia share price soared 30% in May! appeared first on The Motley Fool UK.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Amazon.com, Apple, Barclays Plc, Microsoft, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Top dog

Allianz Global Artificial Intelligence has delivered stunning gains over the last three years — managing an annualised return of 34.5%. That’s far higher than its benchmark of 21.4% and surely makes it a prime candidate to receive my money.

Even so, the extremely high exposure to US stocks is worth noting. No less than 87.5% of assets are invested in companies based across the pond. That’s fine if these stocks keep performing. However, this focus does make me a little nervous considering how stretched valuations are looking. Perhaps unsurprisingly, Tesla is one of the biggest holdings.

Another thing I’d need to bear in mind is the pricey ongoing charge of 1.13%. Existing holders might say there’s no point quibbling when one takes into account the gains already made. As a (stubborn) long-term investor, however, I know costs really matter. More on this in a bit. 

Concentrated portfolio

Sanlam Artificial Intelligence Fund is an alternative to Allianz. Importantly, its exposure to North America is lower at 64%. There’s also money invested in Japanese companies and a stronger liking for emerging market plays. 

This geographical diversification is comforting. Nevertheless, it appears to have come at the expense of performance. In the last three years, Sanlam has managed an annualised return of 26.4%. That’s still superb. However, it’s clearly a lot less compared to its rival. 

Whether this difference reduces in future depends greatly on the stock-picking prowess of both funds, but particularly Sanlam. Here, management adopts a high-conviction approach with just 37 holdings compared to 80 over at Allianz. This may make it the best fund to buy in the long term if (and I can’t emphasise that last word enough) these picks emerge as the true winners in the space. Unfortunately, nothing can be guaranteed. 

Having said this, an ongoing charge of 0.52% feels like great value for an active fund. 

A passive option

There’s an even cheaper way for me to get access to the AI growth story. WisdomTree Artificial Intelligence (LSE INTL) has an ongoing cost of 0.4%. That’s nowhere near as low as I might pay for a bog-standard FTSE 100 tracker. For a passive vehicle in this potentially explosive part of the market, however, it looks reasonable. 

At 56%, exposure to the US market is the lowest of the three funds mentioned. Again, this is a double-edged sword. A lower percentage could conceivably mean less volatility if Uncle Sam stumbles. But it could also mean lower gains if America ‘wins’ the AI crown. Not that performance seems an issue just yet. INTL’s share price is up almost 41% over the last year.

Of course, a single 12-month period isn’t sufficient to make a firm conclusion on this fund’s quality. I must also remember that this ETF’s portfolio is, by its very nature, constructed using fixed quantitative rules.

If I wanted a more nuanced approach, either Allianz or Sanlam might be the optimal choice.

The post Artificial Intelligence: 3 of the best funds to buy appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Since I last wrote about Darktrace (LSE:DARK), its share price has risen 80%. At one point, it was up 145%. As someone who did not buy Darktrace after its IPO, should I buy the current dip in its share price?

I can see a compelling investment case for Darktrace based on its growth expectations. However, I think it is a richly priced share, and I still have some lingering concerns about the company. It’s time to take another look at this share.

Darktrace, cybersecurity, and artificial intelligence

More and more activity is moving online. Thus, the need for cybersecurity is growing. Moreover, the amount and variety of digital attacks and threats are growing. Thus, Darktrace’s cybersecurity solutions are well-positioned to benefit from this trend. Also, Darktrace focuses on solutions that leverage artificial intelligence, learning the normal behaviour of a network, to flag up changes that might represent a threat that has not been seen before.

There is little doubt that Darktraces services are in demand. Darktrace grew its revenues from $17m in 2016 to $199m in 2019. The company estimates its total addressable market to be in the region of $40bn, suggesting plenty of room to keep growing. Gross margins are around 90%, which is hugely impressive.

Although the company is loss-making at the operating and net profit levels, these losses have been narrowing over the last three financial years. That would suggest that if revenue continues to grow, Darktrace will turn a profit at some stage. Revenues are indeed forecasted to grow. Darktrace estimates $278m for 2021 (final year results for 2021 will be released on 15 September 2021) and $354m for 2022, and analysts are in broad agreement.

Why have I not paid the Darktrace share price?

I did not buy Darktrace in May. I would not buy the dip in the Darktrace share price now. For one thing, revenue growth is slowing. It was 158% year-on-year in 2018 and will fall to 27% YoY in 2022 if the forecasted revenue is delivered. Of course, companies often do not sustain the high growth rates seen early in their lives. But, the Darktrace share price trades at almost 18 times its sales per share. That’s a lofty valuation, given the slowing revenue growth.

But, the main reason I did and will continue to avoid Darktrace is that I cannot quash the feeling then or now of uneasiness I get when reviewing the company. For one thing, there are those links to Mike Lynch, who is currently facing fraud allegations in the US. Lynch was a founding investor in Darktrace via his investment company, Invoke. Darktrace admitted in its IPO prospectus that there exists financial and reputational risk from its relationship with Lynch.

Darktrace spent 82% of its revenue on sales and marketing in 2020. That’s down from the 115% of the revenue the sales team gobbled up in 2018, but even so, it’s abnormal for a cybersecurity company. In sharp contrast to the sales spend, Darktrace spent 6% of revenue on R&D in 2020, which again seems low for a cybersecurity company with a claimed cutting edge product.

The Darktrace IPO was just a few months back. As more financial and operating information is released and Lynch’s trial is concluded, my questions may be answered, and I might change my mind. But for now, I am not tempted by the Darktrace share price. 

The post Should I buy the dip in the Darktrace share price? appeared first on The Motley Fool UK.

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James J. McCombie does not own any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.