An Nvidia (NVDA) bear has warned that now is the time for investors to sell.
Nvidia missed expectations when it reported its fiscal second-quarter results on Wednesday. The company reported profit and revenue that beat forecasts but not as much as investors had hoped, posting the smallest profit beat in six quarters.
Nvidia shares fell 6% late Wednesday in response to the results and continued to fall 4% Thursday afternoon. The stock is still up nearly 140% year-to-date.
Asked when it would be time to sell, David Bahnsen, chief investment officer of Bahnsen Group, said: “About a month ago. Two months ago. Today. Tomorrow.”
“People pay for perfection,” Bahnsen added (video above). “You buy Nvidia on the assumption that there’s another investor who’s better than you.”
Bahnsen’s warning comes as the stock has rallied 1,000% from its October 2022 lows. His view is based on one data point: Nvidia’s price-to-earnings ratio, which is just above 56 after the results but is approaching 80 in July.
He recalled that a company and its shares are not the same thing.
“I’m not criticizing Nvidia,” Bahnsen said. “It’s a success story. I’m talking about valuation: when you start paying those prices, the risk/reward becomes very unattractive.”
Still, that’s a risk that 89% of analysts with a buy rating on the stock are willing to take. The stock doesn’t have a sell rating, which is understandable given that Nvidia posted $30 billion in revenue in the second quarter, a 122% increase from the same period last year.
Nvidia’s future depends in part on other tech giants. Hyperscalers Microsoft (MSFT), Meta (META), Alphabet (GOOG, GOOGL) and Amazon (AMZN) account for 40% of Nvidia’s revenue, according to Bloomberg estimates.
Alphabet CEO Sundar Pichai indicated during the company’s earnings call this quarter that the company’s spending on AI isn’t slowing down. “The only way I see it is that when you go through a curve like this, the risk of underinvestment is significantly greater for us than the risk of overinvestment,” Pichai said.
Alphabet’s investment in artificial intelligence, which accounts for a significant portion of Nvidia’s revenue, could be a bullish signal for the future. But those business fundamentals aren’t the only thing to focus on.
“The estimates for next year and the year after are starting to get completely out of control,” Gil Luria, managing director of DA Davidson, told Yahoo Finance.
The next big question for investors is whether the street’s reaction to Nvidia’s results this quarter will be enough to dampen earnings expectations heading into the third quarter.
For Bahnsen, it may already be too late.
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