NVDA (NASDAQ:NVDA) stock has been riding the wave of excitement surrounding artificial intelligence. Their dominance in the AI GPU market has fueled the meteoric rise in their stock price in the past year.
Back on Feb. 4, I presented the scenario of Nvidia becoming a $2 trillion company in 2024. This happened much quicker than expected and Wall Street investors have become increasingly euphoric. Before you buy NVDA stock, here are some reasons for hitting the pause button.
AI Hype and the Coming Downturn
The AI market is undoubtedly vast and brewing with enormous potential. However, the current enthusiasm and market dynamics resemble the dot-com bubble. There’s a risk that investor expectations are simply too high in the short term.
Investors may overestimate the near-term growth potential of the AI market. If advancements in AI stall or cannot materialize and inflation remains sticky, investor sentiment could sour. Too many investors are seeing things at face value, without considering the risks of higher stock prices and elevated valuations.
Sure competition exists and established tech giants like Intel and AMD are investing significant CAPEX into competing products. However, the main risk that I see is the AI trend creating a bubble that will eventually destroy shareholder value.
Macroeconomic Risks Present in 2024
The stock market could head for a correction in Q2 2024, as Wall Street digests the February inflation numbers. Inflation has remained incredibly sticky, and could affect the Fed’s rate cutting plans this year.
It is still early and too soon to know what the picture will look like in the next few months. However, if inflation remains above 3% for the next several months, a correction in tech could be underway.
That rates will remain ‘higher for longer’ in 2024 has been a key idea from JPMorgan CEO, Jamie Dimon. This is not a good look for NVDA, given the stock has more than doubled in the last 6 months alone.
Nvidia will probably continue to see robust revenue and EPS growth over the next several years. However, at what growth rate is still undetermined and their sky high stock price raises major concerns.
NVDA Stock: Hold Onto Your Shares, But Don’t Buy Anymore
NVDA stock boasts impressive fundamentals and the long-term opportunities in AI positioned them for growth. Even after the AI hype slows down and returns to a healthy level, Nvidia will still be one of the market leaders.
The AI GPU market is still in its infancy stages, and Nvidia has a major head start from its competition. Investors who already have holdings in NVDA and entered the market before 2024 may want to consider trimming some profits.
If you’re not already invested in NVDA, waiting for a potential pullback in the stock could be a prudent strategy. This would allow you to buy in at a more attractive valuation, offering a better risk-reward proposition. Regardless of whether you buy more or hold onto your shares, NVDA stock will dominate the AI market for many years into the future.
On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
