Nvidia (NASDAQ: NVDA) is the most popular stock on Wall Street. In recent years it has made headlines for dominating the media artificial intelligence (AI) chip offering, which controls approximately 90% of the incredibly lucrative market. As profits shot through the roof, so did the stock price. Since the end of 2022, it is up more than 1,000%.
The semiconductor giant is not only a favorite of private investors, but also of Wall Street funds. So why is Ken Griffin and his team at Citadel selling a large portion of their stake?
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Citadel Securities is a huge hedge fund known on Wall Street as one of the most successful institutional investors in the world. This year has been kind to the company. Net trading revenue from the combined first two quarters of 2024 rose 81% year-over-year, netting Citadel nearly $5 billion.
Part of that $5 billion came from the sale of just under 9.3 million shares of Nvidia – almost 80% of Citadel’s stake. At an average price of about $107 per share, this move netted the company $993 million.
Although Griffin’s fund is required to report the details of these types of transactions to the Securities and Exchange Commission (SEC) on a quarterly basis, there’s really no other information available that can tell us what Griffin is thinking. The sale of 80% of its stake may seem like a cause for concern, but without more information it is likely just a repositioning.
I’m sure he decided he was happy with the return on his investment, and since Nvidia was trading at or near an all-time high at the time, it was a good time to make an exit. I wouldn’t delve further into the trade.
Incredibly, even after the success Nvidia has had in recent years, it seems like there’s still a lot of work to be done. Companies around Silicon Valley are locked in a race that means billions of dollars will continue to flow into Nvidia’s coffers. Alphabet CEO Sundar Pichai put it bluntly: “The risk of underinvestment for us is dramatically greater than the risk of overinvestment.” That’s why the company is on track to spend $50 billion on capital expenditures this year, up from $31 billion the year before.
With the upcoming release of Blackwell, the next version of Nvidia’s AI-powered superchips, sales will likely only increase from the current fever level. It has been reported that Nvidia has sold out of Blackwell for 12 months after launch. Even though the new chip is coming to market, the current version, Hopper, is still in high demand, and it looks like it will remain that way even after Blackwell’s launch.
Elon Musk just bought 100,000 Hopper chips and is about to buy another 50,000 as he builds what may be the world’s most powerful AI computer once completed. It is currently running at full speed at Nvidia.
The main point of caution here is Nvidia’s valuation. The stock currently has a price-earnings ratio (P/E) of 66 and a forward price-to-earnings ratio of 36. While this is a significant premium, it is not outside the range of reason given Nvidia’s growth potential. It’s also really not as inflated as where the market has historically valued the chipmaker, even before the rise of AI. All in all, I think Nvidia is more than capable of justifying this premium and living up to expectations.
Consider the following before buying shares in Nvidia:
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
Does billionaire Ken Griffin know something Wall Street doesn’t? The Citadel CEO dumps $993 million in Nvidia stock was originally published by The Motley Fool
