Buy Nvidia stock now or wait for another drop? Two fund managers disagree
Chipmaker Nvidia has dominated headlines over the past year, especially after its shares logged an astronomical 240% rise in 2023. Its popularity shows little sign of abating, and although the stock was flat last week, it is still up by nearly 80% over the year to date. FactSet data shows that most analysts remain bullish on Nvidia. Of the 59 analysts covering the stock, 52 give it a buy or overweight rating, while 7 give it a hold rating. Analysts’ average price target is $1004.89, giving it nearly 12% potential upside. The substantial rise in Nvidia’s share price has, however, has raised questions about whether those not already invested should buy the stock now, or wait to see if its price drops. CNBC Pro spoke to two fund managers who have differing opinions. Buy Nvidia Trent Masters, portfolio manager at the Sydney-based Alphinity Investment Management, has a buy recommendation on Nvidia, even as he acknowledges that it is “hard to buy a stock that has already gone up a lot.” “I personally missed the initial run in Nvidia and only bought the stock when it rose to $390 last May after its results. It’s probably one of the hardest things I’ve done in the last 10 years to buy a stock that’s already up so much because it feels like you could be making a mistake. But I think investors just have to view these things objectively,” he said. “We’ve already seen a four-fold expansion in its earnings to $29 per share, which is something we’ve not seen before.” Masters’ only concern is that the chipmaker risks losing some market share to competitors like Advanced Micro Devices in the longer term. He remains bullish, however, given demand for the chipmaker’s suite of products, strong market share of over 50% in the graphic processing units (GPUs) space, and the sustainability of its earnings. Hold off Nvidia Adam Coons, portfolio manager at the U.S.-based Winthop Investment Management, holds a different view. Acknowledging that Nvidia is a “great company,” that is effectively operating a “monopoly” in the AI chipmaker segment, he has been reducing his holdings in the stock “Nvidia is a company that ran too far too fast. We’ve been holding Nvidia through the rally, but we’ve started to sell because the current valuations are inflated,” Coons said, adding that he still has a position in the stock. He is now waiting for Nvidia’s valuation to “normalize” a little before increasing his holdings once again. Metrics he is using to assess this include a normalization in the company’s price-to-earnings ratio and the addition of more revenue streams “that can justify the valuation down the road.” For instance, he is looking at an annualized revenue growth rate of near 50% over the next five years to justify the stock price. “If it did that, I would absolutely buy more stock. I probably go overweight, but I need to have a little bit more comfort. Even if I do miss on some of the upside, I’m fine with waiting just to be sure that I am paying the right price for the stock,” Coons said. For fiscal year 2024, Nvidia’s total revenue rose 265% from a year earlier. Despite reducing his position in the stock, Coons remains cautiously optimistic on Nvidia. “Long-term, it is definitely a company or a stock you want to own. I just think you need to be careful in the short term around some higher volatility and some bigger swings,” Coons added.
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