With the tech giant’s share price showing exceptional volatility, an alternate path could also be clever for investors

NVIDIA (NASDAQ:NVDA) shares briefly surpassed Microsoft and Apple last month to turn out to be the world’s Most worthy company. Nevertheless, the glory was short-lived, because the chipmaker shed 8% of its value in the times following.

Indeed, the AI gold rush, stellar earnings, a 10-for-1 split, and a doubling of dividends have helped NVIDIA shares gain almost 160% YTD. Nevertheless, it can’t be ignored that the tech giant lost greater than $500 billion in market capitalization over three trading sessions soon after it toppled Microsoft, brutally exposing its volatility.

For those keen to speculate in NVIDIA stock but deterred by the recent onslaught, an alternate option would be the top pathway.

Nvidia’s volatile nature

NVIDIA shares gained almost 200% on June 18 (Tuesday) to turn out to be the world’s Most worthy company. Nevertheless, in stark contrast, the next week saw the firm suffer the best three-day value loss in stock market history.

This volatility in NVIDIA stock is predicted to proceed for a while, with experts arguing that the stock’s steep climb makes it vulnerable to further profit-taking, 

June’s $500bn sell-off also raised concerns about NVIDIA being overvalued. Several analysts, including financial research strategist Jim Reid of Deutsche Bank, warned of “signs of over-exuberance” in relation to the AI stock.

Rising competition is one other factor that might drive volatility in NVIDIA shares. Patrick Moorhead, Moor Insights & Strategy founder and CEO, told Yahoo Finance that NVIDIA is competing not only with “merchant silicon providers” like AMD and Intel but in addition with “homegrown ones” from Amazon’s AWS, Microsoft’s Azure, and Google.

One other headwind for the Silicon Valley chip maker might be the costs by the French antitrust regulator. Reuters, in a recent report citing sources acquainted with the matter, noted that the French antitrust regulator will charge the chip maker for anti-competitive practices.

If the costs get up, NVIDIA could face monetary fines and can have to change its business practices. Financial penalties will not be of much worry, but when NVIDIA is asked to make operational changes, it could impact NVIDIA’s competitive edge and market strategy.

So what’s the choice?

Investing in a high-growth stock like NVIDIA comes with a specific amount of risk. When you can stomach this, you’ll be able to invest directly within the stock. But when not, there are other ways to get in on the AI stock frenzy, and chief amongst them is choosing an index fund.

Index funds are passive investments which are designed to mimic (not outperform) the stock market. Investors less bullish but willing to bet on the long run of AI can still make the most of NVIDIA’s meteoric rise by investing in a tech-focused index fund, akin to a NASDAQ 100 tracker fund.

For example, Invesco QQQ Trust tracks the Nasdaq-100 index, which itself tracks the 100 biggest stocks listed on the NASDAQ. It’s a growth-focused index fund heavily weighted toward the technology sector. NVIDIA is Invesco QQQ Trust’s third biggest holding (7.56%), with Microsoft (8.51) and Apple (8.19%) being the primary two.

The Invesco QQQ Trust has returned about 170% over the past five years, or about 22% annually. This fund has outperformed the S&P 500 previously and is more likely to beat it in the long run as well. In the course of the last 20 years, the Invesco QQQ Trust has compounded 14.6% annually, in comparison with 10.3% for the S&P 500 in the course of the same period.

Investing through such funds comes with a fee. The Invesco QQQ Trust, as an example, has an expense ratio of 0.2%. It means you pay $20 per 12 months for each $10,000 invested. Still, index funds are a very good option for risk-tolerant investors who want to cut back their exposure to volatile investments akin to Nvidia shares.