NVIDIA and Merck Point Investors Toward Emerging Trends with Strategic Holdings

When researching potential investments, a useful strategy is to follow the money from dominant companies in an industry. These giants often have a deep understanding of their market and can identify opportunities that smaller investors may miss. Two such companies are NVIDIA and Merck, which have invested in several promising businesses.

NVIDIA's holdings include Coherent (COHR) and CoreWeave (CRWV). Coherent is a provider of advanced optics and networking technology for artificial intelligence infrastructure. In March, the company issued 7.8 million shares to NVIDIA at $256.80 per share, raising $2 billion in capital. This deal also includes a multiyear strategic agreement between the two companies.

NVIDIA's investment in Coherent is significant because it addresses a critical bottleneck in AI infrastructure: data transfer. While processors get most of the attention, they can't function without advanced networking technology to exchange information at high speeds. Coherent helps move this data, making NVIDIA's investment a strategic one that ensures secure technology and manufacturing capacity.

CoreWeave is another NVIDIA holding, and it operates cloud infrastructure for demanding computing workloads. The company has a significant revenue backlog of $104 billion and customer commitments exceeding $25 billion. However, CoreWeave faces challenges in securing electricity, building or leasing data centers, and financing expansion to meet the contracted revenue.

Merck's holdings include Alector, Entrada Therapeutics, and Eikon Therapeutics. These companies are focused on various aspects of medical research and development, but none receive special treatment due to Merck's ownership. Each company is examined based on its own merits, rather than receiving a free pass.

While corporate relationships can be beneficial for smaller businesses, they also come with risks. Companies may become dependent on one customer or supplier, which can lead to difficulties if the relationship changes.