Semiconductor stalwart Nvidia (NASDAQ:NVDA) — whose graphics processing units (GPUs) power multiple artificial intelligence (AI) models — has no shortage of supporters. However, one big investor recently decided to step off the AI-fueled hype train driving NVDA stock. With the stormy conditions some technology enterprises have faced of late, the decision might also be a prudent one.
In a CNBC interview, billionaire investor Stanley Druckenmiller revealed that he trimmed his exposure to NVDA stock earlier this year. “We did cut that and a lot of other positions in late March. I just need a break. We’ve had a hell of a run. A lot of what we recognized has become recognized by the marketplace now,” said Druckenmiller.
Specifically, Druckenmiller took some profits off the table when “the stock went from $150 to $900.” He then took a comical job at an investing legend. “I’m not Warren Buffett — I don’t own things for 10 or 20 years. I wish I was Warren Buffett,” the former hedge fund manager remarked.
This investing decision may prove to be a wise move. While NVDA stock has gained almost 88% on a year-to-date (YTD) basis, momentum has slowed since late March. In the trailing month, shares have gained less than 4%.
Short-Term AI Hype Might Cloud NVDA Stock
Interestingly, Druckenmiller revealed that he first discovered the opportunity in NVDA stock via a young partner at his firm. The Nvidia advocate believed that the sentiment surrounding AI would exceed that for blockchain.
Druckenmiller told CNBC:
“I didn’t even know how to spell it […] I bought it. Then a month later ChatGPT happened. Even an old guy like me could figure out okay, what that meant, so I increased the position substantially.”
Since then, however, multiple enterprises have bought into the AI narrative, naturally propelling NVDA stock to unbelievable heights. That is causing the billionaire investor to offer a more nuanced perspective. “So AI might be a little overhyped now, but underhyped long term,” Druckenmiller said. It’s not an unreasonable thesis.
Nvidia is scheduled to disclose its first-quarter earnings report on May 22. Analysts are looking for a big boost across the board, with EPS potentially landing at $5.55 per share on revenue of $24.49 billion. These stats are well above the year-ago quarter’s print of 98 cents per share on revenue of $6.52 billion.
However, the tech-centric Nasdaq Composite has been choppy since April 11. Further, Super Micro Computer (NASDAQ:SMCI) recently suffered a big drop despite beating revenue and profitability targets. That might mean Nvidia needs a groundbreaking report to please possibly jaded analysts.
Why It Matters
During the CNBC interview, Druckenmiller noted that the “big payoff” regarding the AI narrative “might be four to five years from now.” That puts the near-term forecasted trajectory of NVDA stock into perspective. Right now, analysts on average believe Nvidia shares will reach $1,005.59 per share in the next 12 months. That’s limited upside for what could be a major downside risk if the company fails to impress onlookers.
On the date of publication, Josh Enomoto did not hold (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.
