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Nvidia’s Explosive Growth Sparks Investor Dilemma

Tech Giant’s shares triple in a year, prompting questions of cashing in or holding on
June 21, 2024

Nvidia's astonishing stock rally has left investors pondering their next moves. Should they take profits, hold steady, or continue buying into the AI chip leader that has tripled its share price in the past year?

The Santa Clara-based company recently became the largest U.S. company by market value, thanks to a 1,000% surge in its stock since October 2022. Nvidia's shares have soared 206% over the past 12 months.

Supporters believe Nvidia's best days are ahead. As the dominant provider of AI-supporting chips, Nvidia is expected to see its revenue double this fiscal year to $120 billion, with a further rise to $160 billion next year. By comparison, Microsoft’s revenue is projected to grow by about 16% this fiscal year.

However, this rapid rise has made Nvidia’s shares significantly more expensive, with its forward price-to-earnings ratio increasing by 80% this year. This heightened valuation could make the stock more vulnerable to sharp declines if bad news hits.

Despite these concerns, Nvidia's share price trajectory has rewarded bullish investors and punished skeptics. The stock is up 164% in 2024, pushing its market value to over $3.2 trillion, briefly surpassing Microsoft and Apple.

Optimistic investors cite Nvidia’s unmatched position in the AI-chip sector. The company’s high-performance chips are essential for AI data centers, and its proprietary software framework is a critical tool for developers.

Ivana Delevska, founder and chief investment officer of Spear Invest, remains bullish on Nvidia, predicting earnings growth beyond Wall Street forecasts. Nvidia is the top holding in the Spear Alpha ETF, comprising nearly 14% of the fund.

Tom Plumb, president of Plumb Funds, has held Nvidia shares for over seven years, highlighting the company’s potential beyond AI. “What we really are talking about is data and access to data,” Plumb said. “And they have the fastest, smartest chip that allows that.”

Yet, some investors are cautious. Analyst Gil Luria of D.A. Davidson maintains a neutral rating on the stock, citing concerns about sustaining long-term performance. Billionaire Stanley Druckenmiller recently reduced his Nvidia holdings, suggesting that while AI might be overhyped now, it is underhyped in the long term.

Future competition could also pose challenges. Tech giants like Microsoft, Meta Platforms, and Alphabet are enhancing their AI capabilities, potentially reducing their reliance on Nvidia. Morningstar analysts, who have a $105 fair value on the stock, believe that diversification by leading vendors could limit Nvidia's upside.

Nvidia’s dominance in AI chips positions it for continued success, but investors must weigh the potential risks against the promise of future gains.

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