Is It Finally Time to Take Profits in Nvidia?

One of the leaders of the artificial intelligence (AI) revolution is Nvidia (NASDAQ: NVDA). Demand for the company’s graphics processing units (GPUs) and data center services is surging along with interest in generative AI.

Shares of Nvidia have soared 280% over the last year. Given the unrelenting momentum pushing the stock higher, some investors might be wondering if it’s time to take some profits.

Let’s dig into the full story surrounding Nvidia to determine if trimming your position makes sense.

Nvidia’s train is moving at full speed, but…

Last year was a milestone for Nvidia. The company increased its revenue by 126%, all while expanding its margins and increasing cash flow sixfold. With such a dominant performance and an optimistic outlook, it’s not surprising that investors have poured into the stock. And to add some color here, Nvidia has added $1 trillion of market cap to its valuation in less than two months.

That is a rise of epic proportions. Nvidia is now the world’s third-most-valuable company, sitting behind only Microsoft and Apple.

The recent momentum pushing shares higher is likely causing some investors to consider taking profits. I don’t blame them, but as an investor in Nvidia myself, I’m going to share why I see even better days ahead.

Image Source: Getty Images

…it could easily kick into another gear

Investors should realize that the majority of Nvidia’s growth last year stemmed from its computing and networking business. But outside of GPUs and data center services, it has loads of opportunity.

The company ended 2023 with $26 billion in cash on the balance sheet, double what it had at the end of 2022. Over the last several months, it has been aggressively investing in new areas in AI that it can use to complement its hardware operation.

Specifically, Nvidia invested in two different software businesses: voice-recognition company SoundHound AI, and big data analytics start-up Databricks. I see these as particularly savvy moves. AI-powered voice control is an area where many of Nvidia’s big tech cohorts have demonstrated an interest.

Apple, Amazon, Alphabet, and Microsoft have all invested in this technology and deployed it across their respective lines of smart-home and personal-computing products. Considering that the addressable market for voice-recognition applications is expected to reach $50 billion by the end of the decade, Nvidia’s moves in this lesser-known pocket of AI are understandable.

Another area where Nvidia is investing is robotics. The company recently joined Microsoft, Intel, and OpenAI in a funding round for Figure AI, which is developing humanoid robots that it plans to commercialize in manufacturing, warehousing, and retailing.

Goldman Sachs estimates that humanoid robotics could be a $38 billion market by 2035. Nvidia’s GPU hardware coupled with its fast-growing software services business puts the company in a unique position to help move Figure AI’s ambitions further along in more ways than one.

Is now the time to take some profits?

All of the investments outlined above tell me one thing: Nvidia’s journey isn’t over. The company is planning for the future and is not sitting on its hardware cash cow.

This is why I am optimistic about the company. Yes, the stock has gone parabolic, and many investors are likely up a significant amount of money. But selling a stock simply because the price changed isn’t sound financial judgment, it’s emotional.

I understand that taking some profits is tempting at the moment. There are a lot of unknowns regarding AI — like emerging developers and potential regulatory actions. Also, the moves that the Federal Reserve will or won’t make this year are a mystery at best, and this can add to market volatility in the short term.

But investors should be thinking about the long-term implications here. The artificial intelligence (AI) narrative is just beginning, and it would behoove investors to continue monitoring the next several chapters of the story. For these reasons, I would continue holding Nvidia as it remains one of the strongest opportunities in AI at the moment.

Should you invest $1,000 in Nvidia right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

Is It Finally Time to Take Profits in Nvidia? was originally published by The Motley Fool