Analyst Explains Why He’s Selling Nvidia (NVDA) – ‘I Know It Sounds Crazy’

Nvidia (NVDA) is experiencing a deceleration in annual revenue growth to 56% from nearly 100% previously, driven by increasing competition and capital expenditure limitations, despite its foundational role in AI infrastructure with Hopper and Blackwell. Analyst Jeff Kilburg recently advocated taking profits on NVDA at all-time highs, citing market overconcentration and a strategic shift to underperforming assets. Although the company is expected to maintain growth, albeit at a slower pace, institutional investors like Brown Advisory noted that an underweight position in NVDA significantly detracted from their recent portfolio performance, particularly as NVDA's latest quarterly earnings modestly exceeded consensus and management projects improving gross margins by year-end with enhanced Blackwell production.

Analysis

Nvidia (NVDA) presents a mixed-signal scenario, balancing its foundational role in AI infrastructure with decelerating growth and varied analyst sentiment. The company's annual revenue growth has moderated to 56% from nearly 100% in prior periods, a slowdown attributed to increased competition and capital expenditure constraints from key customers. This has prompted tactical calls for profit-taking, with analyst Jeff Kilburg citing market overconcentration—highlighting the NASDAQ's 65-day streak above its 20-day moving average—as a reason to sell at its all-time high near $175 and rotate into relative laggards like Apple. However, the opportunity cost of being underweight has been significant, as demonstrated by Brown Advisory's investor letter, which identified its underweight NVDA position as a primary detractor from relative performance. Fundamentally, Nvidia's most recent earnings modestly surpassed consensus, and management anticipates gross margins will improve by year-end due to better yields on its new Blackwell architecture. This operational strength is counterbalanced by the long-term risk of margin pressure from competitors like Broadcom (AVGO), creating a complex picture of a market leader navigating a maturing growth phase.

Key Decisions for Investors

• Investors with significant unrealized gains should consider trimming positions to lock in profits and manage concentration risk, given the stock's run to all-time highs and technical indicators suggesting market overextension.
• Long-term holders should weigh the slowing top-line growth against the company's robust AI market leadership and management's positive guidance on gross margin recovery, which may support holding a core position.
• It is prudent to closely monitor the competitive landscape, especially advancements from Broadcom, and track Nvidia's gross margin performance in upcoming quarters as a key indicator of its sustained profitability.
• Consider evaluating relative value opportunities by rotating a portion of capital from Nvidia into other large-cap tech stocks, such as Apple, that have underperformed but may offer catch-up potential.