Cathie Wood bought Nvidia shares for the first time since August. Why might they return to growth?

The Cathie Wood ARK Innovation ETF bought more than 93k shares of Nvidia after the company's strong reporting, its first purchase since August. Despite the impressive results, Nvidia shares fell 3% on Nov. 20 due to concerns about the sustainability of funding for the AI sector. However, Barron's notes two key positive signals indicating that the AI investment cycle remains strong and could last for several more quarters. Most Wall Street analysts still advise buying Nvidia stock.

Cathie Wood's flagship ARK Innovation ETF bought 93,374 shares of chipmaker Nvidia on Nov. 20 after the company's impressive reporting , effectively reaffirming confidence in the manufacturer's prospects. This is the first purchase of Nvidia securities by any of the ARK funds since August 4, Bloomberg notes.

ARK Investment held more than 1.1 million shares of Nvidia as of Sept. 30 (the latest available data).

Shares of Nvidia grew immediately after the publication of reports on November 19, but then went to decline amid a broad sell-off in the market. At the end of trading on November 20, securities fell by 3.2%, as investors are worried that Nvidia's stock is growing, and in the AI industry there are questions about the sustainability of funding, notes Bloomberg. The stock lost another nearly 2% in Friday's premarket.

Barron's writes that the reasons for such sharp stock movements in a day and a week are not obvious. During the tenfold growth of Nvidia's quotes over the past three years, the stock often fell after the publication of results. The current decline may be due to profit taking, the publication writes. Additional pressure is created by macroeconomic risks associated with the policy of the Federal Reserve System (FRS) and the decreasing probability of a rate cut in December.

At the same time, Barron's highlights two positive signals for Nvidia and the AI sector as a whole, which may have gotten lost amid the market reaction. The first signal is the acceleration of Nvidia's revenue growth. This happened for the first time in almost two years, and such dynamics shows: companies are still actively upgrading AI servers, and the cycle seems to last for some time.

Nvidia is now entering the largest product cycle in its history with its new NVL72 servers, which have 72 GPUs instead of eight as before. These expensive systems have just started hitting the market in large batches, and they're the reason the company's sales have accelerated so much. Customers are actively buying them because these servers are much faster and better able to handle AI tasks.

The second important signal is sharply increased sales of networking equipment. Nvidia's revenue in this area increased 162% year-over-year. This indicates strong future demand: according to one executive in cloud AI services, Nvidia networks are usually bought 4-6 months before they start building data centers, Barron's says .

Over time, the semiconductor industry will inevitably build up excess capacity, and then Nvidia's financial performance may deteriorate. Perhaps that will happen in a few years - and the first signs are worth watching closely. But for now, the opposite is happening: Nvidia's revenue is accelerating, demand for AI is growing, and such a negative scenario certainly doesn't look relevant right now, Barron's adds .

There's near unanimous consensus on Wall Street that Nvidia stock is an attractive buy. According to MarketWatch, a majority of experts, 61 analysts recommend buying Nvidia stock, five recommend holding and only one recommends selling.

This article was AI-translated and verified by a human editor