Investors can see how hedge funds are using their money each quarter. The SEC requires institutional investors to file a 13F if their assets exceed $100 million. These reports are released 45 days after the end of the calendar quarter and reveal current positions.
Billionaire hedge fund manager Ray Dalio and his company Bridgewater Associates made an interesting move in the third quarter. they sold NVIDIA (NVDA -4.18%) stock. They reduced the size of their position by about a quarter, selling 1.8 million shares worth about $212 million using third-quarter average prices.
Should investors follow Dalio’s lead and sell some of their positions in NVIDIA? Or is this move being made for another reason?
Nvidia stock has risen dramatically over the past year
Bridgewater Associates’ trend of selling NVIDIA stock is not limited to the third quarter. The company owned more than 7 million Nvidia shares at the end of 2023, but has steadily reduced its holdings with each quarter of 2024. This activity is very common for hedge funds, and they want to realize profits.
Unlike retail investors, who can watch their portfolio rise and fall with little influence, fund managers are evaluated based on their quarterly performance. Individual investors can buy great companies and hold them until they are no longer great, with little concern for day-to-day movements. This strategy has made fool-proof style investing successful, but it doesn’t work for fund managers.
However, we remind you that the profit is not realized until you actually sell the stock. This can be difficult if all you care about is NVIDIA going up. Still, even after the sale, Nvidia remains Bridgewater’s fourth-largest holding. As a result, Dalio and his firm are cutting back on rising stocks to get comfortable with position sizing.
Nvidia has had a legendary performance over the past two years, so many investors should consider this as well. Nvidia’s stock price won’t continue to rise in a near-linear manner forever, and even if Nvidia continues to outperform, realizing some upside might not be the worst idea.
Nvidia is still performing at a high level
We don’t know when that will happen, but Nvidia will eventually run into headwinds. Nvidia’s graphics processing units (GPUs) are driving an artificial intelligence (AI) arms race as companies seek to provide themselves with all the computing power they need to train the best models possible. , are buying them by the truckload.
Eventually, those large buyers will build out the capacity they need, and Nvidia could struggle once that threshold is reached. Now, no one knows whether it will be in 1 year or 10 years. Nvidia has shown cyclicality in the public markets many times throughout its history, and will ultimately struggle in the future.
But that’s not happening now. In the third quarter (ending October 27), Nvidia’s revenue was $35 billion, up 94% year over year. Earnings were even better, with earnings per share up 111%. Fourth quarter revenue is expected to be $37.5 billion, representing a 70% revenue increase, which is an impressive number.
Nvidia is clearly crushing it, and its strength should continue throughout 2025. Additionally, many of the company’s largest clients indicated during the third quarter conference call that they will increase spending on data centers and AI modeling capabilities in 2025, which will be a big benefit for Nvidia. . .
But this success comes at a price. Nvidia’s stock price is not cheap, with a forward P/E ratio of 51 times.
NVDA PE Ratio (Forward) Data by YCharts
This shows extreme expectations, and Nvidia has lived up to them so far. This is a great company that has been successful for several years in a row, and 2025 looks set to be no different. While I don’t think it’s a good idea to sell all your Nvidia stock, especially if it’s a big part of your portfolio, cutting it for a profit seems like a smart move.
Keithen Drury has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
