Ray Dalio Is Buying Shares of This Company. Should You Do the Same?

Ray Dalio is one of the most successful investors of all time. According to the CFA Institute, his hedge fund, Bridgewater Associates, “generated consistent outperformance over nearly three decades, a feat even more impressive when adjusted for risk and fees.”

And one of the biggest bets for Dalio’s hedge fund is buying a superstar stock that minted numerous millionaires in recent years.

This superstar stock is now one of Bridgewater’s biggest bets

Dalio’s hedge fund regularly makes changes to its portfolio. Over the last reported quarter, it either bought more of or sold off all 20 of its top 20 positions. Some positions changed only slightly. Others were either hugely magnified or reduced considerably.

Perhaps Bridgewater’s biggest recent move has been loading up on Nvidia (NVDA -1.62%) stock. Last quarter, it owned roughly 2.7 million shares. Since then, however, the fund has more than doubled its position to around 7 million shares worth more than $600 million. Nvidia is now the fifth-largest bet in Bridgewater’s publicly disclosed portfolio.

Bridgewater isn’t new to Nvidia. It first started buying shares in the third quarter of 2023. Back then, the stock traded at a split-adjusted $50 per share. Now, they’re priced above $120 share — yet Bridgewater keeps buying more. What could be so attractive about the stock that Bridgewater keeps buying more even after its stock price has surged? It has everything to do with the swift emergence of next generation artificial intelligence technologies.

Nvidia stock is one of the best ways to bet on AI

Nvidia stock is on a tear. Its value has nearly tripled over the past 12 months. And over the past five years, its stock price roughly doubled every 12 months. This spectacular performance has been backed by the fundamentals. Over the last fiscal year, for example, revenue has more than doubled, while earnings per share grew by more than 600%.

What is Nvidia’s secret? It sits at the center of the global AI revolution. “Since the start of last year,” writes Fool.com contributor Dani Cook, “Nvidia emerged as one of the biggest threats in AI, with its graphics processing units (GPUs) becoming the most sought-after chips by developers worldwide. Increased demand for AI services has caused Nvidia’s earnings to soar as the market has required a seemingly endless supply of GPUs.”

While the company is exposed to other end markets, make no mistake: Nvidia’s future will ride or die based on not only the trajectory of AI spending, but also the company’s continued ability to produce the industry’s most attractive components. In 2022, Nvidia generated nearly half of its revenue from gaming GPUs alone. Just 39% came from its data center GPUs, which power AI applications around the globe. Today, data center GPUs account for 87% of sales, with the remaining 13% coming from everything else, gaming included.

Bridgewater’s big bet on Nvidia, therefore, should be interpreted solely as a bet on AI. The firm clearly believes that AI spending will continue to explode over the next decade. One market estimate from Gartner believes that AI chip spending will grow by 33% this year. Bridgewater also likely believes that Nvidia will retain its leading market position. Current estimates show the company’s AI accelerators have between 70% and 95% of the market share for artificial intelligence chips.

But there’s growing competition. Even Nvidia’s CEO, Jensen Huang, is “worried and concerned” about whether Nvidia can retain its edge, adding that he knows “people are trying to put me out of business.” Over the decades, the chip wars have produced many cycles of winners and losers. Nvidia has the early lead on this massive and growing market, and Bridgewater is clearly a fan. But investors must be comfortable not only with the stock’s high price tag — shares trade with a $3.1 trillion market cap and a 40 times sales valuation multiple — but also the company’s long-term ability to meet the AI industry’s growing and evolving demand for critical components like chips.