Which is the better buy?

While Nvidia (NASDAQ: NVDA) has been among the world’s most-discussed and fastest-growing major companies, it hasn’t been an investment for everyone. 

Indeed, income-focused investors would find much to be desired when examining NVDA as, for example, a $1,000 stock purchase made in January would have yielded just $0.20 in dividends on October 3.

One exchange-traded fund (ETF) – YieldMax NVDA Option Income Strategy ETF (NVDY) – set out to eradicate this deficiency and has, so far, met with stellar success.

The pros and cons of NVDA stock and the NVDY ETF

Though NVDY’s annual yield is, per the data available at press time, well below its previous highs near 77%, it nonetheless still boasts a respectable distribution rate of 54.22%.

The ETF’s track record reveals that it paid between $1 and $2 per share every month on average—with the more recent payouts being nearer the low end—for a total annual yield of about $14 at an approximate per-share cost of $26. 

Though such staggeringly high and regular payments indicate that NVDY is, without a doubt, the better investment, the situation is not as simple. 

For starters, the ETF depends on NVDA’s growth and volatility for profit generation as it utilizes an options-heavy strategy designed to simulate synthetic long positions and scoop up the difference, mixed with some purchases of short-term treasuries.

The strategy is designed to balance relatively high risks with stupendous potential payouts, and the primary reason it has been working as well as it has is that Nvidia shares have been swinging wildly but on an overall upward trajectory in the last several years.

Simultaneously, the actual growth of NVDY is dwarfed by NVDA stock’s rise. The ETF saw the light of day on May 12, 2023 at about $19.83 per share. NVDY price today, at press time on October 22, stands at $26.34, meaning the fund has risen a total of 32.83% in its lifetime.

Nvidia’s stock, on the other hand, stood at $28.34 on May 12, 2023 – after the June stock split is accounted for – and has risen 406.3% since, to NVDA stock price today of $143.50.

Which is the better buy: Nvidia stock or the NVDY ETF?

Such growth and yield discrepancies reveal the somewhat obvious – if unsatisfying – answer to whether the stock or the ETF is the better investment: it all depends on a trader’s goals.

Since NVDY is heavily dependent on Nvidia shares’ performance, the latter’s fortunes will have a massive impact on the former, both with downward and upward pressure. 

The ETF is, however, complex enough that it is likewise easy to say it is the more risky bet, making it significantly less attractive to risk-averse traders than the semiconductor blue chip. Simultaneously, Nvidia’s own growth has many investors and experts wary of a potential bubble and a potentially dizzying fall.

Still, investors looking for steady income can hardly go wrong by gaining at least some exposure to NVDY, as few assets offer regular payments of a similar size.

Finally, though an NVDY bet would, if the ETF keeps up with its performance, take only two years to double an investment, NVDA shares could – again, provided they keep up with their growth – achieve the same goal within months.