Nvidia (NVDA 4.14%) is the hottest stock on Wall Street. For the last few years, it hit the headlines as it dominated the artificial intelligence (AI) chip supply, controlling roughly 90% of the incredibly lucrative market. As its earnings shot through the roof, so too did its stock price. It's up more than 1,000% since late 2022.
The semiconductor giant is a favorite not just of retail investors, but of funds across Wall Street. So why are Ken Griffin and his team at Citadel selling a huge portion of their stake?
NASDAQ: NVDA
Key Data Points
Ken Griffin's fund has been raking in cash this year
Citadel Securities is a massive hedge fund known on Wall Street known as one of the most successful institutional investors around. This year has been kind to the firm. Net trading revenue from the combined first two quarters of 2024 was up 81% year over year, earning Citadel nearly $5 billion.
Part of that $5 billion came from the sale of just under 9.3 million shares of Nvidia -- almost 80% of Citadel's stake. At an average price of about $107 per share, the move netted the firm $993 million.
Although Griffin's fund has to report the details of trades like these to the Securities and Exchange Commission (SEC) quarterly, there's really no other information available that can clue us into what Griffin is thinking. The sale of 80% of his stake may look like a cause for concern, but without more information, it's likely this is just a repositioning.
I'm sure he decided that he was satisfied with the return on his investment, and since Nvidia was trading at or near all-time highs at the time, it was as good a time as any to make an exit. I wouldn't read into the trade any further.
Nvidia is still poised for growth
Incredibly, even after the success Nvidia has delivered over the last few years, it looks like there is still a lot of runway ahead. Companies around Silicon Valley are locked in a race that means billions of dollars will continue to flow into Nvidia's coffers. Alphabet CEO Sundar Pichai put it bluntly: "The risk of underinvesting is dramatically greater than the risk of overinvesting for us." It's why the company is on track to spend $50 billion in capital expenditures this year, up from $31 billion the year before.
With the imminent release of Blackwell, the next iteration of Nvidia's AI-powering superchips, sales will likely only accelerate from their current fever-pitch levels. It's been reported that Nvidia is sold out of Blackwell for a full 12 months after its launch. Despite the new chip hitting the market, its current iteration, Hopper, is still in high demand and looks to continue to be for well beyond Blackwell's launch.
In fact, Elon Musk just bought up 100,000 Hopper chips and is about to buy another 50,000 as he builds what may be the world's most powerful AI computer once it's complete. It's currently full steam ahead at Nvidia.
The main point of caution here is Nvidia's valuation. The stock currently has a price-to-earnings ratio (P/E) of 66 and a forward P/E of 36. While there is a significant premium baked in here, this isn't out of the realm of reasonableness given Nvidia's growth potential. It's also really not that inflated from where the market has historically valued the chip maker, even pre-AI boom. All in all, I think Nvidia is more than capable of justifying this premium and delivering on expectations.
