Nvidia Corporation (NVDA) is scheduled to release its fiscal fourth-quarter earnings report on Wednesday, after market close. 

Investors are monitoring potential challenges, such as competition from emerging AI firms like DeepSeek, which claim to develop large language models (LLMs) with fewer Nvidia chips. Additionally, geopolitical factors, including U.S. export restrictions to China, pose risks to the AI leader’s sales, as China accounts for a significant portion of the company’s shipments.

See how Nvidia became the AI industry leader and check out the details on the tech and AI ETFs with Nvidia stock as a top holding. 

How Nvidia Became a Top AI Industry Leader 

Nvidia is crucial to the growth of artificial intelligence (AI) because it manufactures the graphics processing units (GPUs) that are used to power AI applications. GPUs are much faster than CPUs for processing large amounts of data, which makes them ideal for AI applications such as machine learning and deep learning.

In addition to its leading market share in the GPU market, Nvidia is also a leader in the development of new AI technologies, such as artificial intelligence accelerators and software frameworks. These technologies are essential for making AI more accessible and powerful. 

Here are some of the reasons Nvidia is so important to the growth of AI: 

• Nvidia powers multiple AI applications: Nvidia’s GPUs are used to power or optimize a range of AI applications, including self-driving cars, virtual reality, robotics and gaming PCs. 
• Nvidia’s GPU market share: In 2022, Nvidia had a market share of 82% in the GPU market, according to the International Data Corporation. Nvidia’s GPUs are the most powerful GPUs on the market and are designed specifically for AI applications. This makes them the preferred choice for AI developers and researchers. 
• Nvidia’s DGX: DGX is a family of high-performance computing systems. The DGX A100 is the most powerful system in the family and is designed for the most demanding AI workloads, such as training large language models and developing self-driving cars. 
• Nvidia’s track record of innovation: Nvidia has been at the forefront of the development of AI for many years. The company has a strong track record of innovation and is constantly developing new technologies that make AI more powerful and accessible. 

Nvidia Has Exposure in AI, Semiconductor and Tech ETFs 

Tech ETFs are a major holder of NVDA stock, specifically in funds focusing on the AI and semiconductor industries. The primary reason Nvidia is a top holding in many technology sector ETFs is because its products power a range of AI applications. 

AI ETFs 

While Nvidia is not directly in the artificial intelligence industry, AI ETFs are a natural fit for NVDA stock, as Nvidia’s GPUs are used to power many AI applications. The largest pure play AI ETF to hold NVDA is the Wisdom Tree Artificial Intelligence and Innovation Fund (WTAI) with an allocation weight of 2.5%. It’s top holding is Palantir Technologies Inc (PLTR) at 3.5% allocation.

Semiconductor ETFs

While Nvidia does not manufacture semiconductors (it designs them), the company is a large consumer of them and primarily buys its chips from Taiwan Semiconductor Manufacturing Company (TSM). The largest semiconductor ETF to hold NVDA stock is the VanEck Semiconductor ETF (SMH), which has an allocation weight of 20.7%. 

Tech ETFs 

Tech ETFs generally encompass the broader technology sector, which includes AI and semiconductor stocks. For this reason, tech ETFs tend to be large holders of Nvidia, but their allocation percentage weights are not high. For example, the largest broad sector tech ETF, the Technology Select Sector SPDR Fund (XLK) has a modest NVDA stock allocation weight of 4.6%, but the fund is so large that the holding represents $3 billion of NVDA’s market value. 

Tech and AI ETFs With Highest Exposure to NVDA Stock 

Currently, over 500 ETFs hold Nvidia stock. The largest ETF to hold NVDA is the SPDR S&P 500 ETF Trust (SPY), with a 6.6% allocation and $41.9 billion in market value. But the funds with the highest exposure to NVDA by allocation percentage, exceeding 10% of portfolio value, are semiconductor ETFs and AI ETFs. 

ETFs With the Highest Allocation Percentage of NVDA Stock

Performance data as of February 21, 2024. Leveraged ETFs were omitted from this list.

The Future of AI ETFs

Despite the potential risks, such as short-term market volatility, the future of AI ETFs appears bright. The market for artificial intelligence is expected to show strong growth in the coming decade, from a recent valuation of about $100 billion up to nearly $2 trillion by 2030. With the AI market growing rapidly, ETFs that focus on AI stocks are a good way to get exposure to this growth.

AI ETFs, such as SMH, gained as much as 39% or more in 2024, as Nvidia consistently smashed earnings estimates. How AI-related stocks and ETFs perform in the short term is uncertain, but the long-term outlook is positive for artificial intelligence and the ETFs that invest in the technology. 

Bottom Line on NVDA Stock, Tech ETFs 

Artificial intelligence is the driving force behind the growth of NVDA stock because Nvidia’s technology is what helps to power AI applications, such as self-driving cars, robotics and gaming PCs. Therefore, the success of AI ETFs and other tech ETFs that hold NVDA will depend largely on the continued growth of the AI market.

While the cutting-edge chip company is expected to continue to grow its market share and revenue in the years to come, investors are wise to expect price volatility for NVDA shares in the short term.

As with any other investment, investors should weigh the benefits and risks of holding AI ETFs and other tech ETFs that may have exposure to NVDA stock.

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