This has been a tough year thus far for Nvidia (NVDA +2.27%). Despite delivering record-breaking results and a stunning forecast, the stock continues to languish and has been treading water for more than eight months. There isn't any one thing holding back the artificial intelligence (AI) chipmaker, but a confluence of events that have kept the stock rangebound.
The geopolitical backdrop, persistent inflation, and questions about the future adoption of AI have weighed on Nvidia's stock, and even some seasoned investors are beginning to lose faith.
Now hedge funds are starting to get in on the action, selling stocks last month at the fastest rate in 13 years, according to data uncovered by Goldman Sachs. Some of the biggest names in technology, including Nvidia, were victims of the fire sale. Fund managers also sought to fortify their positions by shorting U.S. exchange-traded funds, which is a particularly bearish indicator that suggests they believe stock prices will fall. Historically, moves like this bode ill for the market.
This leaves Nvidia investors wondering what to do next. Let's dive in.
Image source: The Motley Fool.
Taking a step back
Nvidia stock had an epic three-year run through the end of 2025, during which the stock price surged by more than 1,180%. After a run of that magnitude, it's understandable that many Nvidia investors are looking to step back and take stock -- as it were -- and there's a lot to like.
Despite tough comps, the chipmaker continues to deliver enviable results that have even accelerated. For its fiscal 2026 fourth quarter (ended Jan. 26), Nvidia delivered record revenue of $68 billion, up 73% year over year and 20% sequentially. This resulted in adjusted earnings per share (EPS) of $1.62, which surged 82%. The expanding profits were fueled by Nvidia's impressive gross margin of 71.1%.
Just weeks later, Nvidia held its annual GPU Technology Conference (GTC) and delivered more good news. Late last year, executives revealed the company had "visibility" into a backlog of more than $500 billion for Blackwell and Vera Rubin AI chips through the end of 2026. The update given by CEO Jensen Huang was eye-opening, suggesting that Nvidia will generate "at least" $1 trillion from those AI-centric chips through 2027.
Furthermore, Nvidia continues to expand its empire, investing billions of dollars into companies that give it enormous reach within the AI ecosystem. The company now has $2 billion stakes in neocloud providers CoreWeave and Nebius Group, optics technology companies Lumentum Holdings and Coherent, networking components provider Marvell Technology, and engineering solutions provider Synopsys -- not to mention the company's $5 billion stake in Intel. These investments and the strategic partnerships that come with them give Nvidia unprecedented influence over the future direction of AI.
Each of these developments, taken alone, suggests the future is bright for Nvidia, but together they paint the picture of a company at the top of its game.
NASDAQ: NVDA
Key Data Points
What are Nvidia investors to do?
Generally speaking, hedge funds are playing a different game than long-term investors. The money managers who head these funds employ a variety of very aggressive investment strategies, and many have extremely high turnover in their portfolio holdings. As a result, returns are inconsistent, and most hedge fund managers fail to beat the market, as measured by the S&P 500.
On the other hand, long-term investors have an advantage that hedge funds don't have. They aren't being graded on their quarterly performance and aren't trying to pad their results to beat arbitrary benchmarks. This frees individual investors from the shackles of date-driven investing.
That means investors can sit tight and ride out the uncertainty, rather than getting caught up in the momentum like lemmings rushing toward an unseen cliff.
While Nvidia stock is swimming against the tide, the business is doing just fine from an operational and financial perspective.
At 36 times earnings, Nvidia might appear expensive at first glance, but that's well below its average multiple of 73 over the past three years. Other valuation metrics confirm that the stock is attractively priced. Its price/earnings-to-growth (PEG) ratio clocks in at 0.54 when any number less than 1 is the standard for an undervalued stock. Moreover, at 21 times forward earnings, the stock is a steal.
Just because fund managers are selling Nvidia stock doesn't mean it's the right move. The company is doing just fine, and the best thing for investors to do is to sit tight. In most cases, ignoring the daily machinations of the stock market and doing nothing is the best course of action. I believe Nvidia will resume its upward trajectory in due course, as the stock price will eventually follow the business and financial results higher.
This isn't just lip service on my part. Nvidia is my largest holding at 15% of my portfolio (as of this writing), and I don't plan to sell a single share.
