Nvidia Corp’s shares have seen a remarkable rally, leaving investors debating whether to sell, hold, or continue buying. Nvidia briefly became the largest U.S. company by market value, with its share price soaring over 1,000% since October 2022 and up 206% in the past 12 months.
Nvidia supporters predict further gains, citing the company’s leading role in the AI chip market. Revenue is expected to double this fiscal year to $120 billion and increase to $160 billion next year. This growth contrasts with Microsoft, which anticipates a 16% revenue increase for its fiscal year. However, Nvidia’s rapid rise has also led to a high valuation, with its forward price-to-earnings ratio increasing by 80% this year, making it vulnerable to sharp declines if negative news emerges.
Chuck Carlson, CEO of Horizon Investment Services, cautions against letting past performance drive investment decisions, although Nvidia’s trajectory makes it tempting to chase gains. In 2024, Nvidia’s share price has increased by 164%, pushing its market value over $3.2 trillion and briefly surpassing Microsoft and Apple.
Nvidia’s dominance in the AI chip sector underpins investor optimism. The company’s high-performance chips are essential in AI data centers, and its proprietary software framework is widely used for programming AI processors. Ivana Delevska, founder and CIO of Spear Invest, remains bullish, expecting earnings to exceed Wall Street forecasts. Nvidia is the top holding in the Spear Alpha ETF, comprising nearly 14% of the fund. Delevska notes that Nvidia’s earnings growth supports its stock price increase, with a forward P/E ratio of about 45, slightly higher than its five-year average of 41.
Tom Plumb, president of Plumb Funds, believes Nvidia’s potential extends beyond AI, emphasizing the importance of data access and the company’s superior chips. Plumb Funds has held Nvidia shares for over seven years, making it the largest position in their two funds.
However, some analysts are cautious. Gil Luria of D.A. Davidson praises Nvidia’s revolutionary products and growth but maintains a neutral rating with a $90 price target. He doubts whether Nvidia’s customers will sustain the spending needed to meet high earnings estimates.
Billionaire investor Stanley Druckenmiller recently reduced his Nvidia stake, suggesting AI might be overhyped in the short term but has long-term potential. Carlson of Horizon Investment Services considers Nvidia a “buy” but excludes it from his firm’s 30-stock portfolios due to its high valuation.
Concerns also include potential competition that could challenge Nvidia’s market position. Tech giants like Microsoft, Meta Platforms, and Alphabet are building their AI capabilities, which could reduce their reliance on Nvidia. Morningstar analysts, who have a $105 fair value on the stock, warn that successful development of alternatives could limit Nvidia’s profitability.
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