Santa Clara, California – Harding Loevner, an investment firm, recently announced their decision to sell off all their shares in Nvidia Corp., a company they had been invested in for over five years. The initial purchase of Nvidia shares by the firm was made during a time when concerns about excess inventory in gaming chips were affecting Nvidia’s valuation, presenting an attractive buying opportunity. Since then, Nvidia’s stock price has experienced significant growth, especially after the launch of OpenAI’s ChatGPT tool in November 2022, which showcased the practical applications of generative AI and highlighted the importance of semiconductors.
Nvidia’s semiconductors, particularly their GPUs adapted for AI computation, have become the industry standard for training AI models, holding an estimated 95% share of the market. The integration of Nvidia’s GPUs with CUDA, their proprietary software-development platform and programming language, has provided a significant competitive advantage due to superior performance and compatibility. However, the decision to sell off Nvidia shares was based on the belief that the stock price did not reflect the risks and uncertainties adequately, leading the firm to focus on other businesses with more attractive valuations.
Investing in rapidly growing companies like Nvidia poses challenges in predicting market size and potential. While Nvidia is expected to lead the AI chip market, there are concerns about maintaining market dominance in the face of increasing competition from hyperscalers like Amazon, Google, Meta, and Microsoft who are developing their own chips tailored for specific tasks. This trend may erode Nvidia’s dominant position over time.
The firm sees potential in companies in communication services, software, and IT services that offer durable competitive advantages in profiting from AI advancements without being overvalued. By investing in companies like Meta, Alphabet, Microsoft, Salesforce, SAP, and ServiceNow, opportunities for growth and resilience in the evolving AI landscape are recognized. The market for AI is dynamic, and not all current winners may maintain their positions in the future, prompting Harding Loevner to focus on software businesses rather than hardware companies like Nvidia in their investment strategy.
Overall, the firm’s investment approach emphasizes assessing each company’s competitive advantage and seeking reasonably priced opportunities to align with long-term growth strategies. The current valuation of software businesses presents a more attractive risk-return tradeoff compared to hardware businesses like Nvidia, leading to a shift in the portfolio’s investments towards the IT sector’s software and services businesses.
