Nvidia (NASDAQ: NVDA) stock seems to just keep defying expectations. We recently passed the halfway mark for this year and during that time its share price rose a whopping 156.4%.
There was talk that the artificial intelligence (AI) giant could slow following its epic 233.3% rise in 2023. Safe to say, that hasn’t been the case.
In the last five years, the stock’s up nearly 3,000%. But now at $122.6 a share, what could the months and years to come have in store for the chip maker?
What next?
Predicting what a stock will do is a difficult task. It’s even more challenging when that stock is Nvidia. If it replicated its performance from the first six months of the year, that would mean it would rise by over 300% this year.
Of course, I’m not expecting it to climb that high. Analysts have a 12-month target price of $135.8. That represents a 10.7% premium from its current price. That seems more sensible.
The bull case
Then again, some would argue that a 10.7% rise seems conservative. Based on current estimates, the firm’s expecting sales of $28.4bn for this quarter, representing a 111% rise year on year.
AI is set to keep booming and no doubt Nvidia will keep capitalising on the craze. If it beats Wall Street estimates in the coming quarters, its share price could easily rise more than what analysts forecast.
The bear case
But I see one major risk. Nvidia can’t keep up this pace forever. Yes, it’s beaten estimates over the last few quarters, which has sent the stock soaring. But this growth will inevitably slow at some point. Could it be that investors are getting caught up in the hype and pushing Nvidia too high?
Maybe. Nvidia’s now the most expensive stock on the S&P 500, trading at over 23 times forward sales. What’s more, its price-to-earnings (P/E) ratio is 72.8. That’s way above the S&P 500 average. Its shares trade on a forward P/E of 43.6.
Tech stocks tend to trade at a premium. So there’s that to consider. But I’m worried Nvidia has gone too far, too soon.
Its share price has experienced a couple of major swings over the last few weeks, which could be a cause for concern. Between 18-21 June, it slid by around 7%. That could be a sign to expect large volatility when investing in the stock.
What I’m doing
I own Nvidia shares. Today, I’m sitting on a 191.1% paper gain. I’ve been considering what to do with my holding over the last few weeks.
While I expect the stock to keep heading upward in the years to come, I think we could see it heavily recoil at the first sign of a slowdown. That’s why in the weeks ahead I plan to reduce my position and rebalance my portfolio.
I think it makes sense for me to withdraw some profits and reinvest them elsewhere. I’m bullish on Nvidia over the long run, so I won’t be completely closing my position. But I’m wary that we could see its share price pulled back.
This post was originally published on Motley Fool
