Nvidia (NASDAQ: NVDA) has been riding high on the crest of the artificial intelligence (AI) wave, witnessing an astronomical surge of over 500% since the advent of 2023. However, a shadow of doubt has been cast over this soaring journey as even the sharpest of minds in the investing realm, like billionaire Stanley Druckenmiller, are rethinking their stance on the rapid ascent of this technology titan.
Stanley Druckenmiller, the maverick behind Duquesne Capital Management with a remarkable track record of an average annual return of 30% over nearly three decades, made a bold move by loading up on Nvidia during the ChatGPT genesis. Yet, the maestro now views the rally as losing its vigor, having slashed over 70% of his Nvidia holdings in the first quarter, relegating the AI chip giant from his third-largest position to seventh. In a candid CNBC interview, Druckenmiller advocated for seizing profits, signaling, “We’ve had a hell of a run. A lot of what we recognized has become recognized by the marketplace now.” Thus, hinting that the stock may have reached its zenith.
Decoding Nvidia’s Earnings Potential
The upcoming first-quarter earnings reveal holds the key to Nvidia’s trajectory, expected to be unboxed post market closure on Wednesday, deciphered the day after. Can Nvidia replicate its Wall Street dazzle?
In the previous quarter, Nvidia witnessed a revenue surge of 265%, scaling up to $22.1 billion, predominantly propelled by a staggering 409% growth in its data center arm. The profit margins expanded even more rapidly, bolstered by the company’s grip over the data center GPU market. Adjusted net income soared by 491% to $12.8 billion, with the first-quarter guidance hinting at another robust display with revenue projections hovering around $24 billion and adjusted net income pegged at $13 billion.
Nvidia’s consistent history of outperforming its own predictions sets a positive tone for the imminent earnings, echoing the strong results from its AI collaborators like Super Micro Computer and Arm Holdings. Moreover, the recent revenue spike at TSMC and disclosures from Tesla and Meta Platforms tout continued vigor in the AI chip landscape, further validating Nvidia’s prowess in this domain.
Contemplating Nvidia Stock Holdings
For those entwined with Nvidia since the ChatGPT era mimicking Druckenmiller’s strategy, a prudent profit-taking stance may be wise. However, an abrupt pullback in the stock post-earnings seems improbable, given the buoyancy in Arm and Supermicro’s performances, coupled with the AI consumption binge orchestrated by behemoths like Tesla and Meta Platforms alongside Nvidia’s consistent track record of exceeding its target figures.
Nvidia’s valuation appears rational with a forward P/E of 37 akin to Microsoft, despite the forecasted accelerated growth rate. The impending guidance for the second quarter will flag the onset of a rollback in year-over-year revenue expansion post the exorbitant surge over the past year.
The principal threat looming over Nvidia remains potential competition. Yet, the formidable challengers such as AMD and Intel are yet to pose a significant market share threat to Nvidia. If Nvidia can assuage investor concerns by showcasing sustained monopoly-like margins in a rapidly expanding market, the stock is likely to witness an upswing post-earnings, overshadowing Druckenmiller’s caution.
Unpacking the Nvidia Investment Gambit
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