Reasons to Sell Nvidia Stock:Reasons to Sell Nvidia Stock: * Experts’ Concerns about AI Monetization: Experts believe that many AI tasks may not be cost-effective in the next decade, potentially limiting Nvidia’s future growth tied to AI. * Overvalued Rating: Nvidia’s high earnings multiple (47 times expected earnings) implies aggressive growth expectations that may be difficult to sustain, especially amid challenges in the consumer AI sector. Reason to Buy Nvidia Stock: * Long-Term Advantages: Nvidia has a strong market position in AI technology, supported by its picks-and-shovels business model, technological advantages, and customer loyalty through its CUDA software. Investors may consider buying the stock for long-term potential as the AI industry matures. $1,000 Investment Opportunity: The Motley Fool suggests that investors consider investing in other stocks recommended by their Stock Advisor team rather than Nvidia, as they believe those stocks have the potential to deliver significant returns over time. However, this does not preclude investors from buying Nvidia if they believe in its long-term prospects.
With stocks up nearly 28,000% in just 10 years, Nvidia‘S (NASDAQ: NVDA) rally will go down in history. A $2,000 investment in 2014 would be worth $560,000 today — more than enough to buy a median-priced home for cash. But such returns are unlikely to last forever.
New investors must decide whether the risks of holding Nvidia stock today justify the potential rewards. Let’s discuss two reasons why it might be time to sell the stock, and one reason to consider buying more.
Experts are starting to sound the alarm
After nearly two years of growth driven by artificial intelligence (AI), Nvidia’s future is now closely tied to the future of this one industry. Most retail investors aren’t fluent in this highly technical field, so we have to rely on experts to crunch the numbers. Some of their perspectives are alarming.
According to MIT professor Daron Acemoglu, only about a quarter of AI tasks can be cost-effective in the next 10 years. He believes large language models (LLMs) such as OpenAI’s ChatGPT or Alphabet‘S Bard needs higher quality data to improve — more than better hardware. And it’s unclear where that data will come from, since many quality sources already has been tapped.
Acemoglu’s concerns echo comments from analysts at the investment bank Goldman Sachswho claim that technology companies will struggle to monetize the $1 trillion they have poured into AI investments in the coming years.
As an AI company that can operate anywhere, Nvidia can make money even if its customers lose. But this situation can’t last forever. Eventually, consumer AI algorithms have to become profitable, or customers will stop buying the expensive Nvidia chips to run and train them. This risky situation could lead to a decline in the company’s growth and, by extension, its valuation. So now might be the best time for investors to take profits.
Nvidia’s rating isn’t that great anymore
By a market capitalization With a value of around $3 trillion, Nvidia is the third largestlargest company in the world – which trades at 47 times expected earnings.
On the surface, this seems reasonable, if not downright cheap, given the company’s explosive growth. Second-quarter revenue more than doubled to $13.51 billion, while net income jumped 843% to $6.2 billion. But the situation is a little more complicated than it first appears.
Image source: Getty Images.
Nvidia’s valuation is factoring in future growth, meaning the market expects the company to grow beyond its already massive size. The cracks forming on the consumer side of the AI industry will only exacerbate this more difficult to make it happen. Nvidia will also face challenging comps as it strives to surpass this year’s spectacular performance.
The story continues
It is risky for investors to hold shares in an overvalued company because they are betting on growth that has not yet occurred. And it may be wiser to sell shares before market sentiment deteriorates.
Nvidia has some long-term advantages
Nvidia stock is in a challenging position. The AI industry faces an uncertain future in monetizing LLMs, and the company’s valuation appears overpriced given its undiversified revenue base and the challenging comps it faces next year and beyond. However, long-term investing is the key to sustainable stock market returns, as it allows investors to wait out short-term challenges and gain insight into a company’s long-term value.
For buyers, Nvidia remains the best bet on the future of AI technology because of its picks-and-shovels business model and technological advantage over rivals, bolstered by its software solutions like CUDA, which are designed specifically to work with Nvidia hardware and make customers less likely to switch to rival chipmakers. Investors buying the stock now are betting on its ability to weather near-term headwinds as the AI industry matures over the coming decades.
Should You Invest $1,000 in Nvidia Now?
Before you buy Nvidia stock, there are a few things you should consider:
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
Will Nvidia Stock Crash? 2 Reasons to Sell (and 1 to Buy) was originally published by The Motley Fool
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