The semiconductor giant Nvidia (NASDAQ: NVDA) is quite the company, developing high-end graphics processing units (GPUs) that help power artificial intelligence (AI) applications. Many investors view Nvidia as the picks-and-shovels play for AI, which would be pretty remarkable given how much AI is expected to change nearly all aspects of our daily lives.
With a nearly $3 trillion market cap, Nvidia has grown so big that it has excess resources available to invest in other AI companies that it finds compelling or that it may partner or work with. At the end of its fiscal 2025 fourth quarter (ended Jan. 26), Nvidia reported that its stock portfolio totaled nearly $305 million, and 81% of the portfolio at the time was invested in these three groundbreaking AI stocks.
Nvidia’s position in Arm Holdings (NASDAQ: ARM) amounted to nearly $136 million at the end of Q4, or roughly 45% of Nvidia’s stock portfolio. The position used to be even bigger, considering Nvidia sold over 850,000 shares in the quarter. Arm is a British semiconductor company that owns the intellectual property rights to the technology that powers many modern-day chips found in a range of technology devices made by some of the largest companies in the world.
In 2020, Nvidia actually tried to buy Arm for $40 billion but regulatory roadblocks squashed the deal. The failed deal turned out to be a blessing in disguise for Arm because Nvidia invested in the company’s initial public offering and Arm currently has a market cap of nearly $130 billion. The two companies have long collaborated, as Arm provides key technology that Nvidia has used in most of its chips including its next-generation Blackwell GPUs.
Since Arm’s initial public offering (IPO) in September 2023, shares of the company have more than doubled. In the calendar year 2024, revenue grew 27% from calendar year 2023, while diluted earnings per share have surged from $0.07 to $0.76. The stock has also held up compared to others in the AI sector and is only down about 4% this year. Still, it trades at about 76 times forward earnings and investors left its most recent quarter with concerns about future AI demand. This makes it a bit risky and its valuation a bit expensive, but if AI demand remains or accelerates, Arm will do well.
Nvidia’s position in the digital infrastructure company Applied Digital (NASDAQ: APLD) amounted to roughly $59 million at the end of Q4, or roughly 19.4% of the portfolio. Applied Digital builds data centers specifically for AI. These data centers are located near renewable energy sources, have liquid cooling capabilities, and are scalable to meet future demands.
Applied Digital deploys Nvidia GPUs to make high-performance computing applications possible. In 2023, Applied achieved “elite partner” status in Nvidia’s Partner Network. Elite partners receive priority access to Nvidia’s products. It seems like it’s in Nvidia’s best interest for Applied to do well, so by funding the company it is essentially helping its own prospects as well.
Applied is still losing money right now. For the six months ending Nov. 30, Applied reported a loss of $0.81 per share, compared to a $0.21-per-share loss in the same period one year prior. The stock has been volatile in recent months but analysts remain bullish. At the end of January, Compass Point analyst Joe Flynn initiated coverage of Applied Digital stock, assigning a buy rating and $10 price target, which implies about 33% upside from current levels (as of March 25). Flynn thinks there is a good chance that Applied Digital soon signs a data center deal with a large cloud provider like one of the “Magnificent Seven.”
Recursion Pharmaceutical (NASDAQ: RXRX) is not your typical AI infrastructure play, but rather a biotech company leveraging AI to achieve drug discovery in an innovative way. At the end of last year, Nvidia’s position amounted to $52.1 million, or 17% of the portfolio. Recursion uses machine-learning algorithms and data to try to dissect biological relationships that lead to more efficient drug discovery.
According to the company’s annual report, Recursion has “one of the most sophisticated automated wet-laboratories in the world where robots and sensors help us conduct and digitize millions of real-life experiments each week, spanning cellular systems, chemical systems, tissue systems, and animal models.” Recursion also said it has access to the fastest supercomputer of any biotech company.
Similar to the companies above, Nvidia has also partnered with Recursion. In July 2023, Recursion announced a $50 million investment from Nvidia through a private investment in public equity (PIPE). Nvidia also provided the company with access to its technology. At the time of the PIPE, Recursion co-founder Chris Gibson said, “With our powerful dataset and NVIDIA’s accelerated computing capabilities, we intend to create groundbreaking foundation models in biology and chemistry at a scale unlike anything that has ever been released in the biological space.”
Like a lot of young biotech companies, Recursion is still losing money, but it has a pipeline of 10 clinical and pre-clinical programs. Biotech stocks are the ultimate risk-reward plays because their success involves getting drugs approved and over the finish line before they run out of cash, effectively making them like start-ups. Recursion certainly seems to have some innovative technology and good partnerships in place, but I wouldn’t recommend taking anything more than a smaller, more speculative position right now.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Nvidia Has 81% of Its $304 Million Stock Portfolio Invested in 3 Groundbreaking AI Stocks was originally published by The Motley Fool
