Should You Follow Billionaire David Tepper and Ditch Your Nvidia Shares?

David Tepper is a billionaire known for owning the NFL’s Carolina Panthers and co-founding hedge fund Appaloosa Management.

Every quarter, intuitive investors managing more than $100 million must file a Form 13F. These filings reveal what stocks “smart money” portfolio managers bought and sold in the past quarter.

According to Appaloosa’s latest 13F, the firm disposed of 84% of its stake in the semiconductor stock. Nvidia (NVDA 4.05%) in the second trimester. Normally, investors are left to speculate on what might have influenced the heavy buying or selling activity of a particular stock.

However, during a recent interview with CNBC, Tepper didn’t hold back. He actually explained the rationale behind selling Nvidia stock, and frankly, I’m completely on board.

Let’s dig into what Tepper said and explore some specific risk factors surrounding Nvidia right now.

A wise man knows that he knows nothing

In the interview, Tepper shares his thoughts on Nvidia’s trajectory. While he admits that near-term growth looks bullish thanks to the company’s upcoming Blackwell GPU launch, Tepper goes on to say that he has “no idea” what the company might look like after 2025.

“We sold a lot of Nvidia, but the stock I thought was too big at the time,” Tepper told CNBC. “Those stocks like Nvidia … (are) a question — do you have enough power for growth, do you have next-generation models that can take their chip? I don’t know how you know.”

What specific challenges does Nvidia face?

Most of Nvidia’s growth right now comes from its computing and networking businesses. More specifically, the company’s chipsets — known as graphics processing units (GPUs) — are used for a number of generative artificial intelligence (AI) applications. While players including Intel and Advanced microdevices also develops chips, Nvidia GPUs are widely regarded as the industry standard.

Many of the world’s largest technology enterprises, including Microsoft, adze, Amazon, Meta platformsand Alphabetthey are believed to be some of Nvidia’s biggest customers.

While this seems like fantastic news on the surface, there is more to the story. Each of the “Magnificent Seven” members above is investing heavily in AI infrastructure, and that includes developing chips in-house.

As more GPUs flood the market and compete more directly with Nvidia, the company’s pricing power is likely to wane. In turn, Nvidia’s entire operation could begin to decelerate — from sales, to profit margins, to cash flow.

Image source: Getty Images.

Should you ditch your shares of Nvidia stock, too?

It’s only natural that increased competition could hurt Nvidia’s growth. Where things get tricky is trying to quantify how much Nvidia’s revenue and earnings strength could be affected. These fluctuations and unknowns surrounding Nvidia’s financial forecast appear to be influencing Tepper’s trading activity.

Here’s another way to think about it: Ask yourself if Nvidia stock will be higher in a few years compared to where it is today. With competition from its own customer base on the horizon, it’s hard to buy into a narrative where Nvidia’s operation gets significantly bigger in the next few years or even the next decade. With that in mind, how long will it be appropriate for Nvidia stock to continue trading at a premium to its peers?

While I suspect Nvidia will remain a core engine powering the broader AI movement, I think there’s a real case to be made that the stock’s best days are behind it.

With all that said, I wouldn’t encourage panic selling of a position in Nvidia. Rather, if you think the company’s growth prospects look compromised or unconvincing, you may want to take some profits while maintaining exposure to Nvidia, just as Tepper did.