It’s not often Nvidia (NASDAQ: NVDA) is making headlines for its stock price falling. So, when the shares fell 6% last month, it’s safe to say it grabbed my attention.
That being said, its weak performance in July hasn’t made much of a dent in its gains this year. During 2024, the stock is up a whopping 142.9%. Zooming out, it has risen 150.4% in the last 12 months.
Nvidia has taken the market by storm in recent times. No doubt some lucky shareholders have become rich.
But with its share price being volatile last month, is that a sign of what’s to come? As a shareholder, is now the time for me to take my profits and get out?
Volatile spell
It was a topsy-turvy month for the chipmaker. Nvidia entered July at $124.3 and finished at $117.1. It rose as high as $134.9 and fell as low as $103.7.
When a stock rises as quickly as Nvidia has in the past couple of years, some volatility should be expected. In the stock market, peaks and troughs are inevitable.
Cause for concern?
But should its performance in July be a cause for concern for investors? Potentially.
I’ve voiced my worry about Nvidia’s valuation over the past couple of months. While I understand that many tech stocks tend to trade at a premium, with a price-to-earnings (P/E) ratio of 68.5, Nvidia does look particularly expensive.
I guess one of the best ways to judge just how pricey the stock is right now would be to compare it to the remaining ‘Magnificent Seven’ of giant US tech stocks. So, let’s do just that.
The average P/E ratio for the group is 43.1. The highest, excluding Nvidia, is Tesla (61.8). The lowest is Alphabet (24.6). Based on that, Nvidia could be deemed overpriced. There’s a threat that its current valuation could prompt a share price correction.
Impressive performance
Then again, who’s to say the stock can’t just keep soaring?
The company has been flying, consistently beating analysts’ expectations. Its last update came back in May. For the quarter, revenue rose to $26bn, up 18% from the previous quarter and a staggering 262% year over year. Jensen Huang, founder and CEO, stated that “the next industrial revolution has begun”.
Time to sell?
I recently offloaded some of my Nvidia shares. My position was up by over 200% and it made sense to rebalance my portfolio. I used the cash to buy more HSBC shares with their 7.2% dividend yield.
Despite its lofty valuation, I do see long-term value in Nvidia, even at today’s price. So, for now, I’ll be keeping my remaining shares.
Its cutting-edge innovation will keep it at the front of the pack in the booming artificial intelligence industry. That bodes well for future growth prospects. And Huang is a visionary leader.
My only concern is that Nvidia can’t keep up this impressive level of growth forever. When it inevitably slows, we could see its share price pulled back.
I’m holding on to my shares. But I won’t be adding to my position, even with the stock taking a hit in July.
This post was originally published on Motley Fool
