Nvidia’s growth prospects questioned amid surge

Nvidia’s growth prospects questioned amid surge

Growth Surge

Nvidia has been a darling of the stock market, with shares soaring over 200% in the past year on optimism about artificial intelligence. However, some investors are starting to question the company’s growth prospects and valuation. Paul Wick of Seligman Investments has been trimming his holdings of Nvidia in recent weeks.

“Our enthusiasm has moderated somewhat over the last one to two weeks,” Wick said, without elaborating on how much of the stake has been cut. Wick, who has invested in the tech sector for about three decades, drew parallels between Nvidia and companies like Cisco during the dot-com bubble. Lofty valuations and the lack of recurring revenue “make their businesses inherently riskier,” he said.

Nvidia gets about 60% to 70% of its revenue from its 10 largest customers, which Wick highlighted as a significant risk factor compared to companies with very low customer concentration and thousands of customers. Despite the recent surge, some investors remain cautious. Nvidia trades at 43 times projected earnings over the next year, a richer valuation than all but one of its peers in the Philadelphia Semiconductor Index.

Generative AI companies that have spent billions on Nvidia systems have low returns on invested capital, Wick noted. He added that many of Nvidia’s largest customers are aggressively designing their own processors, including Alphabet’s Google and Microsoft. The stock remains among the top holdings of Wick’s fund, which has beaten 97% of its peers over the past three years.

However, Nvidia has to “show that the growth can continue at a robust clip,” Wick concluded.

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Nvidia’s growth concerns emerge

One wealth manager, Dhruba Jyoti Sengupta of Wrise Private Middle East, is happy not owning Nvidia.

“I bought into Nvidia during the early days and exited my position at a decent 300% gain. Of course, the stock has risen further to over $1,000 now, but I’m glad to have secured a profit at a price point I’m happy with,” Sengupta said. Instead, Sengupta shared his preference for three different stocks from around the world: Adobe, Harley-Davidson, and HDFC Bank.

Sengupta sees promise in Adobe, given the potential of generative AI not just for text but also for photos in the medium to long term. “The market is not seeing much potential in Adobe because Nvidia is making all these big future predictions and markets love that. But Adobe offers a great opportunity as the biggest software company for photos,” he added.

In the luxury goods space, Sengupta has his eye on Harley-Davidson. “Living in Dubai, I am a firm believer that no matter what happens, the luxury stocks, in the long run, will always do well. Men are now becoming like women in terms of luxury spending, especially on toys like Harley-Davidson,” he said.

In India, the wealth manager is betting on financial firm HDFC as the country—and the bank itself—prepares for growth. “The bank has a hugely diversified revenue stream. I think it’s the most valuable bank in the world right now,” he said.


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