Sell or not sell NVIDIA? Wall Street is very contradictory

Thanks to its dominant position in the field of artificial intelligence chips, NVIDIA's stock has performed extremely well in recent years. Since the beginning of 2023, the stock price has risen by about 785%, with a 160% increase in just this year alone. In June of this year, NVIDIA briefly became the world's most valuable company.

However, last week, due to cooling inflation data triggering significant volatility in large-cap tech stocks, NVIDIA fell nearly 6% on Thursday, marking its largest single-day decline in over two weeks; the tech-heavy Nasdaq 100 index fell by about 2.2%.

Analysts believe that increased competition, changes in supply-demand balance, and high valuations may increase the risks associated with NVIDIA's stock. "If NVIDIA's stock price falls, over-concentration in one stock could pose risks to investors."

"Funds holding NVIDIA have benefited greatly"

Currently, NVIDIA's allocation in funds is continuously increasing. According to Morningstar data, as of the end of the first quarter of this year, 355 actively managed funds held NVIDIA's stock, accounting for 5% or more of their total assets, compared to only 108 funds in the same period last year.

Jack Shannon, a senior analyst at Morningstar, pointed out: "Some portfolio managers feel they missed out on opportunities with Apple or Microsoft, and they do not want to miss out on artificial intelligence, so they are reluctant to sell NVIDIA."

Some analysts believe that NVIDIA's massive position reflects investors' desire to invest in a few large growth stocks, leading to a highly concentrated market. According to S&P Dow Jones Indices data, NVIDIA alone accounts for about one-third of the S&P 500 index's nearly 17% gain this year.

A global research strategist at Bank of America stated that the current market concentration is the third highest since 1986, with only 24% of stocks in the S&P 500 index outperforming the index's gains in the first half of the year.

Funds holding NVIDIA have benefited greatly. Morningstar data shows that actively managed U.S. stock funds holding NVIDIA's stock averaged a 16.3% increase in the first six months of 2024, while funds not holding the stock averaged a return of 5.7%.

Market volatility raises concerns among investors

Currently, analysts have an average target price of $133.45 for NVIDIA, about 3% higher than the current level. According to data from the London Stock Exchange, NVIDIA's forward price-to-earnings ratio is 39.3 times, about 50% higher than the industry median. Some analysts believe that NVIDIA's valuation is already too high and a correction may be imminent.

Phil Orlando, Chief Equity Market Strategist at Federated Hermes, stated:

Allocating 6% or more of a portfolio to one stock clearly brings significant risks. While a stock may rise like a rocket, it does not mean it is a wise investment... Don't put all your eggs in one basketAnthony Zackery, portfolio manager at Zevenbergen Capital Investments, has been holding NVIDIA since 2016. However, he stated that he will "cautiously" trim positions regularly to ensure that risks are within his risk tolerance