Nvidia investors should have sold the stock a month ago, strategist says

An Nvidia (NVDA) bear has warned that it’s time for investors to sell.

Nvidia failed to meet soaring expectations when it reported its fiscal second quarter earnings on Wednesday. Nvidia reported profits and revenue that beat forecasts, but not as much as investors had hoped, delivering the smallest earnings growth in six quarters.

Shares of Nvidia fell 6% late Wednesday in reaction to the results and continued to fall 4% Thursday afternoon. Year to date, the stock remains up nearly 140%.

When asked when it might be time to sell, David Bahnsen, chief investment officer of the Bahnsen Group, said: “About a month ago. Two months ago. Today. Tomorrow”.

“People pay for perfection,” added Bahnsen (video above). “Buy Nvidia banking because there is another investor who is dumber than you.”

Bahnsen’s warning comes as the stock is up 1,000% from lows since October 2022. His call is based on a single data point: Nvidia’s price-to-earnings ratio, which is just over 56 after earnings, but came close of 80 in July.

He provided a reminder that a company and its stock are not the same thing.

“This is not me bashing Nvidia,” Bahnsen said. “This is a success story. I comment on the valuation – that when you start paying those prices, the risk-reward decline becomes very unattractive.”

Still, it’s a risk 89% of analysts with a Buy rating on the stock are willing to take. The stock has zero sell ratings, which is understandable given that Nvidia posted $30 billion in revenue in the second quarter, a 122% year-over-year increase.

Nvidia’s future depends in part on other Big Tech companies. Hyperscalers Microsoft ( MSFT ), Meta ( META ), Alphabet ( GOOG , GOOGL ) and Amazon ( AMZN ) are responsible for 40% of Nvidia’s revenue, according to Bloomberg estimates.

Alphabet CEO Sundar Pichai indicated on the company’s earnings call this quarter that the company’s spending on artificial intelligence will not slow. “The only way I think about it is when you go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us,” Pichai said.

Alphabet’s investment in AI, which accounts for a significant portion of Nvidia’s revenue, could be a bullish signal to come. But those business fundamentals aren’t the only focus.

“The estimates for next year and the year after are starting to get out of hand,” DA Davidson CEO Gil Luria told Yahoo Finance.

The story continues

The next big question for investors is whether the Street’s reaction to Nvidia’s results this quarter will be enough to dampen Q3 earnings expectations.

For Bahnsen, it may already be too late.

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