Mar Vista's U.S. Quality Strategy Established a Position in NVIDIA (NVDA) Following a Pullback

Mar Vista Investment Partners, LLC, an investment management company, released the “Mar Vista U.S. Quality Select Strategy” first quarter 2025 investor letter. A copy of the letter can be downloaded here. US stocks suffered their worst quarter in three years, with the steepest losses since 2022, due to tariff concerns and economic stagnation fears. In the first quarter, the strategy returned -3.05% net-of-fees compared to -4.49% and -4.27% returns for the Russell 1000® Index and the S&P 500® Index, respectively. Stock selection within healthcare, communication services, and consumer staples detracted from the fund’s performance during the quarter. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its first-quarter 2025 investor letter, Mar Vista U.S. Quality Select Strategy highlighted stocks such as NVIDIA Corporation (NASDAQ: NVDA). NVIDIA Corporation (NASDAQ:NVDA) offers graphics and compute, and networking solutions. The one-month return of NVIDIA Corporation (NASDAQ:NVDA) was -4.49%, and its shares gained 28.80% of their value over the last 52 weeks. On April 24, 2025, NVIDIA Corporation (NASDAQ:NVDA) stock closed at $106.43 per share with a market capitalization of $2.597 trillion.

Mar Vista U.S. Quality Select Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2025 investor letter:

"We initiated a position in NVIDIA Corporation (NASDAQ:NVDA) following a significant pullback in the stock. The decline was prompted by concerns stemming from the emergence of DeepSeek, an unknown Chinese AI software company, which unveiled a highly efficient large language model (LLM). DeepSeek’s breakthrough raised investor fears that U.S. hyperscalers might reduce their capital expenditure plans due to a shift toward more resource-efficient AI models. This led to concerns over potential overcapacity in the AI infrastructure market, weighing heavily on NVDA’s stock.

As a result, NVDA shares declined nearly 30% from recent highs, presenting an attractive entry point. On our cost basis, NVDA was trading at approximately 25x expected 2025 earnings and 20x expected 2026 earnings, valuations we found compelling for a company projected to grow revenue and earnings by over 50% in calendar year 2025. We viewed this risk-reward profile as favorable, especially given NVIDIA’s dominant position in powering the transition to accelerated computing architecture that powers the AI ecosystem.

The AI market is still in its preliminary stages, characterized by fast-paced innovation, and evolving rapidly. While DeepSeek’s advancement sparked a debate around capital efficiency, we believe it reinforces a broader trend we have seen in past technology cycles. Specifically, we view Jevons’ paradox, where gains in efficiency lead to increased overall consumption, as highly relevant to AI. Supporting this view, U.S. hyperscalers increased their 2025 capital expenditure guidance during Q4 2024 earnings calls in January, despite being fully aware of DeepSeek’s progress. Further, the integration of reasoning capabilities into leading LLMs, such as those used in ChatGPT, is significantly increasing computing intensity. Some experts estimate that inferencing models with reasoning can demand up to one hundred times more computing, reinforcing the idea that greater efficiency will not lessen, but rather increase, demand for NVIDIA's infrastructure.

We remain mindful of the rapid evolution within the AI space from the emergence of more efficient models to the still-nascent monetization of AI software. Against this backdrop, we chose to initiate a focused position in NVDA while reducing exposure to other AI-related holdings such as Broadcom, Amphenol, and Oracle. In our view, NVIDIA offers an attractive way to participate in the generative AI buildout, combining scale, technological leadership, and a healthy growth outlook."

NVIDIA Corporation (NASDAQ:NVDA) is in 5th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 223 hedge fund portfolios held NVIDIA Corporation (NASDAQ:NVDA) at the end of the fourth quarter which was 193 in the previous quarter. NVIDIA Corporation (NASDAQ:NVDA) reported another record quarter in fiscal Q4 2025 with $39.3 billion in revenues, representing a 78% year-over-year increase and 12% sequential growth. While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

In another article, we covered NVIDIA Corporation (NASDAQ:NVDA) and shared the list of stocks on analysts’ radar amid tariff turbulence. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.