The last 18 months have been very good for Nvidia (NASDAQ:NVDA).
The growing demand for artificial intelligence (AI) applications since the launch of ChatGPT has pushed major technology companies to procure Nvidia GPUs as quickly as possible. This led to a huge increase in the chipmaker’s revenue and profits, as well as a commensurate increase in Nvidia’s stock price. Shares are up 425% since ChatGPT launched on November 30, 2022.
But some of the stock market’s most influential members think Nvidia’s run may be overblown. Members of Congress and hedge fund billionaires are selling Nvidia stock and buying two other AI stocks that could have even more upside potential. Should You Follow the Smart Money and Ditch Nvidia Stock?
Who sells Nvidia and why?
Nvidia has seen a slew of sellers on Capitol Hill and Wall Street.
Members of Congress who have sold the stock since last October include:
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Michael McCaul, Republican Representative from Texas
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John Curtis, Republican Representative from Utah
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Ro Khanna, Democratic Representative from California
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Josh Gottheimer, Democratic Representative from New Jersey
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Dan Meuser, Republican Representative from Pennsylvania
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Tom Suozzi, Democratic Representative from New York
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Dan Newhouse, Republican Representative from Washington
Eight high-profile billionaires have also reduced their positions in Nvidia, according to their most recent SEC filings:
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Israel Englander, Millennium Management (1,689,322 shares sold)
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Jeff Yass, Susquehanna International (1,170,611 shares sold)
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Steven Cohen, Point72 Asset Management (1,088,821 shares sold)
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David Tepper, Appaloosa Management (235,000 shares sold)
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Philippe Laffont, Coatue Management (218,839 share sold)
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Chase Coleman, Tiger Global Management (142,900 shares sold)
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John Overdeck and David Siegel, Two Sigma Investments (30,663 shares sold)
Granted, most of these smart investors aren’t completely getting rid of their positions in Nvidia. But they are reducing their stakes considerably. And it may be more than just profit-taking after Nvidia’s incredible price performance.
There is reason to believe that Nvidia’s future is not as bright as its recent past. On the one hand, the valuation of stocks remains high. Stocks trading at over 35x forecast profits expectations. And even if Nvidia should see strong demand for a year or two thanks to several large customersit is not certain that it can sustainably increase its profits at such a rapid rate in the long term.
Management highlighted in its 10-K that one of its clients represented 13% of its revenue in fiscal 2024. The concentration of its clientele constitutes a significant risk, especially since the most Nvidia’s large customers are actively working on developing alternative chip designs for their own use. One of Nvidia’s biggest advantages right now is its existing relationship with Semiconductor manufacturing in Taiwan, the world’s leading chipmaker. As more competing chips are manufactured at scale, demand for Nvidia’s chips will decline.
