‘Why Isn’t Nvidia in My Portfolio?’ How Advisors Are Answering Client Questions About Hot Stocks.

He says he didn’t load up on it as it made its 60% gain between April and mid-June, and certainly wouldn’t buy it now at its lofty valuation. “If we had bought it five years ago, it may have been a different story,” he says. “But we didn’t.”

Fruzzetti isn’t alone in fielding such inquiries these days. Clients have been peppering their advisors with questions about the so-called Magnificent Seven group of large-cap tech stocks (

Alphabet
,

Amazon.com
,

Apple
,

Meta Platforms
,

Microsoft
,

Nvidia
,

and

Tesla

), even as some advisors over the past year have kept clients largely or completely out of some of the names with the biggest buzz, including Nvidia.

“It’s not that people have gotten aggressive, they’re just incredibly curious,” says Ali Flynn Phillips, president at $2.1 billion-asset Obermeyer Wood Investment Counsel, in Aspen, Colo.

Flynn Phillips sold off the Nvidia position she’d held for several years in 2023, judging its valuation to be high and taking a good profit for clients, but missing an 86% run-up in the stock’s price through the first 5 1/2 months of 2024. “Clients largely understood our rationale, and for those who wanted more exposure to AI, we have selectively purchased it again in select accounts,” says Flynn Phillips.

Advisors have had plenty of these sorts of conversations over the years, with clients quizzing them about dot-com stocks in the 1990s and FAANG stocks starting in the mid-2010s, for example.

The last time clients were in Fruzzetti’s ear so much about an investment was in the 2021 glory days of the

ARK Innovation ETF.

Fruzzetti took a hard pass on the red-hot fund, which recently was down more than 70% from its February 2021 high.

Fruzzetti has told clients that he doesn’t like the “retail-driven mania” that’s helped explain Nvidia’s meteoric rise and that he prefers longtime holding Microsoft for exposure to the artificial intelligence revolution. Microsoft was recently up 93% since the start of 2023.

Ryan Detrick, chief market strategist at $36 billion-asset Carson Group, says clients often ask the firm’s advisors why they don’t own more tech stocks, or even own tech stocks exclusively. Such questions are why advisors spend so much time explaining market history to clients—for example, how sectors that lead the market one year often fall behind the next year. “When you chase shiny objects, that’s when you tend to get burned,” Detrick says. 

As Fruzzetti seeks to allay clients’ fears of missing out, he points to the firm’s Microsoft position, built over the past 15 years or so. The company is a global leader in cloud computing servers, through which roughly 37% of all global data pass, Fruzzetti notes. It’s a major investor in OpenAI, the artificial intelligence research and development firm behind large-language AI models like ChatGPT. “I would say they will be one of the significant players when it comes to AI,” says Fruzzetti.

Flynn Phillips tells clients that investing requires humility. “Sometimes you’re going to sell too early, and sometimes you’re going to miss companies,” she says. “But as long as you have other high-quality companies that are generating good returns over time, that’s ultimately the goal.”

Flynn Phillips, who still has positions in Microsoft, Alphabet, and Apple, thinks buzzy terms like “Magnificent Seven” are a positive because they get her clients more engaged with certain parts of their portfolios. “The con,” she says, “is that they might focus on one portion of the portfolio and not the overall picture.”

Flynn Phillips and her colleagues have explained to clients that you don’t necessarily need to own the company that’s part of the acronym or buzz term. The key is to own those that stand to benefit from the trend that’s powering the headline names—an approach that can involve less risk. Her firm might no longer own Nvidia, but it does own the likes of

Taiwan Semiconductor
,

ASML
,

and

Broadcom
.

“They’re various derivatives of AI, which we’ve got more comfortable with because we think they have better valuations,” Flynn Phillips says.

It can also be wise to invest in nontechnology companies that are using AI and other cutting-edge technology to improve their operations, she adds. Those can be unsexy names like

Walmart

and

Deere & Co
.

Investors aren’t clamoring for those kinds of names the way they have for Nvidia, Meta, or Amazon, but investors shouldn’t chase past performance, says Flynn Phillips. People love following a crowd, and crowds are great for choosing restaurants,” she says. “But they’re not great for always choosing stocks.”

Advisors like to remind clients who are in the grip of FOMO that even the most impressive market leadership is transitory. Tesla, which Flynn Phillips has never owned, has fallen about 50% from its 2021 high. General Electric stock is still more than 40% off its 2000 high. “G.E. was the most valuable company in 2005,” says Flynn Phillips. “Nobody talks about GE anymore.”

No advisor can forbid a client from owning a stock the advisor doesn’t like. Including a token amount in their portfolio is one way to placate those who really need to own the stock that always seems to come up on the golf course. Fruzzetti is OK with clients buying such stocks outside the account he manages. “There have been a few clients who say, ‘You know, I’m going to buy it on my own,’” he says. “I tell them, ‘Go have fun, throw a few bucks toward it if you want; that’s your decision.’”

Write to advisor.editors@barrons.com