The Nvidia (NASDAQ: NVDA) The stock story continues to improve, largely thanks to incredible demand for the company’s graphics processing units (GPUs) and related technology that enables artificial intelligence (AI) capabilities. It’s not too late to buy stocks. I just outlined 25 reasons to buy Nvidia stock now.
But there’s an important question worth answering that doesn’t get much attention: When should you consider? sale shares of Nvidia stock?
There are no ‘right’ answers. Investors vary in terms of financial and personal factors. That said, below are three solid reasons for any investor to consider selling shares of Nvidia stock.
1. When CEO Jensen Huang no longer leads the company
Investors should consider selling at least some of their Nvidia stock if Huang no longer leads the company he co-founded in 1993. He reportedly turned 61 earlier this year and seems to love his job, so barring any health issues, he could end up working at Nvidia. many more years at the helm. To say Huang will be difficult to replace is an understatement.
Thanks to Huang’s foresight, Nvidia is many years ahead of the competition in AI technology. More than a decade ago, he began steadily using the profits from Nvidia’s once-important computer gaming business to position the company in the catbird seat as the “AI age” truly arrived. And that happened in late 2022, when generative AI made a big splash on the tech scene with OpenAI’s release of its ChatGPT chatbot. Generative AI greatly expands the potential applications for AI.
2. If and when the company’s GPUs look set to lose their AI-enabled ‘gold standard’ status
A more precise (but overly long) subtitle is the above plus the following: “And if the company fails to develop any technology, GPUs will be pushed from their lofty position.”
Nvidia’s GPUs are by far the chips of choice for accelerating the training of AI models and running AI applications in data centers. Estimates vary, but the company is generally expected to have more than 90% market share for data center AI GPU chips, and more than 80% of the total data center AI chip market.
This is a fantastic market to check. Advanced micro devices CEO Lisa Su predicts that the global AI chip market for data centers will reach $400 billion in sales by 2027, representing a compound annual growth rate (CAGR) of over 72% from an estimated size of $45 billion in 2023.
Nvidia’s data center business accounted for about 87% of total revenue last quarter, and a larger (but unknown) percentage of total profit. So investors should consider selling shares if signs point to the company’s technology being supplanted as the gold standard for enabling AI processing in data centers.
How will we know? What signs will there be?
Besides staying informed in the general space, there are two specific things investors can do. First listen to Nvidia’s quarterly results. Huang and CFO Colette Kress are not only interesting, but also very candid. Recordings of these conversations will be posted on Nvidia’s investor relations site for you to listen at your leisure.
Second, keep an eye on Nvidia’s margins: gross, operating and profit, with a special focus on gross margin. A company’s margins will steadily decrease if it loses its competitive advantages. The key word is ‘steady’. Occasional short-term dips or ups and downs are usually not a cause for concern.
Below is Nvidia’s 10-year margin history. There are ups and downs, but the overall trend is clearly up. This is a margin profile chart winner. (I’ve used twelve-month margins for all three margin types, as this smooths out some of the quarterly ups and downs. But you can also use quarterly data, as that may be easier.)
3. To rebalance your investment portfolio
Nvidia stock has performed astonishingly well over the long term, and especially since 2023. So over the past year and a half, the stocks have undoubtedly grown to comprise a much larger percentage of many investors’ total portfolios.
No matter how great a company is, it’s risky to have too many eggs in one basket. This is especially true for technology stocks, which are inherently more volatile than stocks of companies in more stable industries.
So it’s wise for investors to rebalance their portfolio regularly (perhaps quarterly or annually) so that no single stock becomes too large a position relative to their total investments. “Too large” is very subjective, so you will have to decide what percentage you are comfortable with.
Should You Invest $1,000 in Nvidia Now?
Consider the following before buying shares in Nvidia:
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Beth McKenna has positions at Nvidia. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
Nvidia stock is still a great buy, but when should investors sell shares? was originally published by The Motley Fool
