Nvidia’s lofty expectations are starting to be called into question.
NVIDIA (NVDA -9.53%) NVIDIA is poised to be a source of incredible gains in both 2023 and 2024. However, some smart investors are starting to sell off in case NVIDIA doesn’t live up to the lofty expectations embedded in its stock price. These investors include billionaire hedge fund managers like David Tepper, who runs Appaloosa Management.
Is now the time to follow suit, or does Nvidia have room for further upside?
Billionaires are starting to make profits
If a hedge fund or public company has holdings of more than $100 million in its portfolio, the company is required to report those holdings to the SEC quarterly, and the SEC makes that information public 45 days after the end of the quarter, so this information isn’t always new. David Tepper and Appaloosa could have sold a large portion of their Nvidia shares as early as April 1, without us knowing about it until August 15.
But the report does give investors some insight into what the big money on Wall Street is up to. In the second quarter, Appaloosa reduced its NVIDIA holdings by about 85%, with NVIDIA now accounting for just 1.4% of its overall investment portfolio. And Appaloosa isn’t alone: Ken Griffin, the billionaire head of Citadel Advisors, also sold about 80% of his NVIDIA holdings in the second quarter.
These sell-offs may spook some investors, but there’s no need to worry. Managing a hedge fund is nothing like having a personal portfolio. Managers are accountable to clients every quarter, so if there’s an opportunity to lock in big gains, they’ll take it. Retail investors don’t have to trade every quarter, so holding through the ups and downs is less of an issue.
So, is now the right time for retail investors to sell?
Nvidia continues to grow at an astounding rate
Nvidia recently reported its financial results for the second quarter of 2025 (ending July 28th), and the results were once again surprising. Revenues grew 122% year over year to $30 billion, with the data center business continuing to drive the company. Quarterly revenues for the division totaled more than $26 billion, up 16% from the previous quarter and 154% from the previous year. Third quarter guidance is also strong, with revenues expected to reach approximately $32.5 billion.
The core business is still growing at an incredible rate and is successful, but can it live up to the valuation expectations? Current expectations call for NVIDIA to generate approximately $2.75 in earnings per share in fiscal 2025. That means the company’s stock is trading at roughly 44 times full-year forecasts. That’s expensive, and year-over-year growth is likely to slow as NVIDIA starts to face tough comparisons.
Analysts expect earnings of $3.81 in fiscal 2026, valuing the company’s stock at 32 times next year’s earnings. That’s not cheap and shows the high expectations priced into the company’s stock price. NVIDIA may achieve these projections, but valuations could fall if investors start to worry that NVIDIA won’t meet its targets. Moreover, if NVIDIA’s growth slows, these valuations will become too high and the stock price will fall.
So right now the risks of Nvidia stock are far greater than the rewards, and billionaires are realizing this and dramatically reducing their holdings. I don’t think this is a bad move, and it’s one that retail investors should start considering. There are plenty of other great investments out there that are more affordable.
Keithen Drury has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.
