SMCI - Nvidia Stock: It's Time To Take Profits

2024-06-11 09:45:40 ET

Summary

• Nvidia Corporation is likely approaching peak earnings and revenue due to fall back to earth, has had a spectacular run in the past 18 months. While we are several quarters away from peak earnings, we may be at the peak for the stock price.
• Nvidia today reminds me of Cisco Systems stock in 2000, where the share price peaked many quarters before sequential revenue growth stopped.
• Much of Nvidia's current sales are to Cloud Providers and other resellers, and not to end users.
• I think the AI trend is a mix of hype and real potential, and that the real potential is more than priced in at this point.
• I believe the stock split is a "sell the news" type of event, and investors overweight in Nvidia should consider taking profits here.

In my last article in this space on March 15th, I recommended that investors sell Super Micro Computer ( SMCI ) and buy Nvidia Corporation ( NVDA ) for those bullish on the AI investment theme. At the time, SMCI was trading at a higher multiple than NVDA, something that was rare historically. I did not believe SMCI deserved a higher multiple because NVDA has a far deeper moat. That call worked out well, and anyone who sold $1000 worth of SMCI at the time now has $1376 of NVDA instead of $720 worth of SMCI (nearly a double.)

Here's my next call: you should take profits on NVDA right now. I think the current situation has all the hallmarks of a blow-off top, and I think shares could trade down 25% over the next month (which would bring us all the way back from a valuation of 3 weeks ago) and more by year-end....

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