$NVIDIA (NVDA.US)$It has risen by 148% so far this year and is the second best performing stock in China, second only to nvidia, which has risen by 188%. Investors are wondering whether they should sell now. When it comes to when to sell stocks, I often draw on the investment wisdom of Jeff Vinik, a former hedge fund manager and former portfolio manager at JPMorgan. Vinik said in an interview that he would sell stocks when the fundamentals deteriorated, valuations became too high or better investment opportunities arose.$S&P 500 Index (.SPX.US)$These rules don't seem to apply to nvidia today. In the past few months, the fundamentals behind the AI frenzy have improved. In May of this year, nvidia reported a year-on-year increase in first-quarter revenue of 262% and a year-on-year increase in profit of 461%.$Super Micro Computer (SMCI.US)$.
According to FactSet data, nvidia's P/E ratio based on expected earnings in 2025 is about 35 times, and considering that nvidia's revenue is expected to grow by 37% during this period, such a valuation is not outrageously high. At the same time, the industry environment continues to improve. Last week, JPMorgan released the results of a survey of 166 chief information officers (CIOs) of companies, who are responsible for $123 billion in annual technology spending. The survey showed that over the next three years, spending on generative AI hardware is expected to grow by more than 40% per year, and the proportion of this spending as a percentage of IT budgets is expected to rise from 5% this year to 14.5% in 2027.
Piper Sandler recently released a survey report targeting corporate CIOs, which showed that nearly half of companies have shifted from AI testing to implementation in the past year. People have spent a lot of time discussing the topic of whether AI will cause the end of humanity, but the real spending is focused on simpler and less controversial goals: making enterprises more efficient. Most of the spending on nvidia's graphics processors by enterprises is to gain insights and analysis from unstructured data pools.
Enterprises are redesigning their computing infrastructure, moving away from traditional information and document retrieval models toward new generative AI approaches that generate answers and insights based on demand. There is no choice but to take such measures in a competitive environment.
Investors have pushed up nvidia's stock price, but they may still not fully appreciate this opportunity. This is the core view put forward by Philippe Laffont, founder of Coatue Management, at an investment event hosted by Bloomberg last week.
Laffont pointed out that since the invention of personal computers, about $100 trillion (in today's dollars) has been invested in CPU infrastructure, all of which will need to be replaced by devices focused on GPUs over time, with trillions of dollars more to come.
Coatue Management has always been a big investor in nvidia. The company's recent 13F filing shows that it held $1.25 billion worth of nvidia shares as of March 31. A spokesperson for Coatue Management did not disclose its latest position.
Even the nvidia bulls may be wondering if it's time to cut back now. This is the hardest decision to make in investing.
Laffont has some advice on this, warning investors not to be foolish. He said: "Stanley Druckenmiller once told me that he made 120% of his money on investments that were easiest to understand, with 20% of his money lost elsewhere, and I really think that's true. So far, the biggest mistake I've made is selling stocks too early."
"Laffont said Coatue Management missed out on an additional $20 billion in revenue from Tencent because the company sold its stock too early 20 years ago. The opportunity in the AI field is certainly no longer a secret, but that doesn't mean nvidia's upward trend is over. Laffont remains bullish on nvidia, citing the example of the iPhone, which experienced a substantial increase over a decade after dominating the technology field."
Nvidia also has similar years of opportunity, and investors are better off not being foolish before these facts change or valuations become ridiculous.
Edited by Jeffrey