Paul Wick, from Seligman Investments, has been reducing his stake in NVIDIA Corp. recently due to concerns about its earnings growth potential. He mentioned that his enthusiasm for the stock has decreased in the past few weeks. Wick, who has a background in technology investing, compared Nvidia to Cisco Systems during the dot-com bubble, noting the high valuations and lack of recurring revenue as risk factors for both companies.
Nvidia relies heavily on its top 10 customers for the majority of its revenue, making it a riskier investment compared to companies like Microsoft and Google with a more diversified customer base. The chipmaker’s shares have soared over the past year, fueled by optimism surrounding artificial intelligence, making it the most valuable company in the world. However, some investors, including Rob Arnott of Research Affiliates LLC, are skeptical about the sustainability of this rally.
Wick highlighted Nvidia’s high valuation of 43 times projected earnings for the next year, which is higher than most of its peers in the semiconductor industry. He also mentioned that companies utilizing Nvidia systems for generative AI purposes have seen low returns on their investments. Additionally, Nvidia’s major customers, such as Google, Microsoft, and Meta, are actively developing their own processors, posing a threat to Nvidia’s market share.
Despite reducing his stake in Nvidia, the stock remains among the top holdings in Wick’s fund, which has performed well relative to its peers over the past three years. Wick emphasized the importance for Nvidia to demonstrate sustained growth to justify its current valuation.
In conclusion, Wick’s cautious stance on Nvidia reflects concerns about its business model, customer concentration, and competition in the market. While some investors remain bullish on the stock, Wick’s decision to trim his holdings signals a more conservative approach towards the high-flying chipmaker.
Article Source
https://fortune.com/2024/06/22/nvidia-stock-outlook-paul-wick-seligman-stake-revenue-warning/