Cathie Wood Cut Her Nvidia Position. Should You Follow in Her Footsteps?

Stock Market

Nvidia (NASDAQ:NVDA) has emerged as a dominant force in AI chip technology. With a myriad of new technologies requiring ever-more computing power, Nvidia’s high-performance chips stand ready to meet this demand. The dominant player in the high-performance chip space, NVDA stock has received outsized attention. And as its recent results show, the company is certainly benefiting from this demand in terms of top- and bottom-line growth.

The company’s core business provides what appears to be durable growth and a strong relative moat. Although the semiconductor maker has sky-high valuation multiples, Nvidia has proven its ability to grow at very high margins. Accordingly, there’s a reason this stock has broken through the $2 trillion valuation level recently.

However, with growth guru and ARK Invest founder and CEO Cathie Wood continuing to trim her Nvidia holdings, investors have to ask whether this surge has peaked. After all, Wood has a pretty strong track record of picking disruptive innovators, and cycling into the companies with the most aggressive growth prospects.

Let’s dive in!

Pinterest Over Nvidia?

Cathie Wood’s profits from trimming her NVDA stock position have been put into other companies Cathie Wood sees as better upside bets. One such purchase was that of visual content exploration platform Pinterest (NYSE:PINS).

While Pinterest’s user base trails behind significant platforms like Facebook and TikTok, Pinterest ranks among the top ad tech companies globally. Leveraging AI investments, it enhances user experience through personalized recommendations and search features. 

CEO Bill Ready highlighted advancements in AI capabilities, significantly improving recommendation relevance and user engagement. Updated features, such as generative AI and automated content curation, attract investors and analysts to Pinterest.

Projected to 15% every year til 2030, its digital ads are prospering. With reasonable valuation and unique strengths, Pinterest has the potential for social commerce. This move is certainly intriguing, and one I didn’t see coming. And it’s become an even more interesting move, given the downside momentum seen in PINS stock in recent days.

Nvidia at $2 Trillion

Nvidia shares initially surged over 4% on Friday morning but later dipped. This rise followed a strong earnings report. The company’s growth is fueled by AI advancements driving chip demand, with revenue doubling to over $60 billion last year. CEO Jensen Huang noted a global demand surge. 

Nvidia reached its $1 trillion value in less than just a year, and recently, it reached a record-breaking $2 trillion valuation. The company now ransk fourth of the biggest companies by valuation worldwide. 

Before the AI surge, Nvidia incorporated features into its chips to aid machine learning, enhancing its market presence. It’s now a pivotal player in gauging AI’s widespread adoption. Share prices soared over 200% in a year, reaching almost $800. Following its earnings report, a historic $277 billion surge occurred, igniting a broader market rally. 

AI’s potential is proving itself, impacting various sectors, from automotive to telecommunications, marking a pivotal industry shift.

Strong Faith and Outlook on AI

Nvidia’s CEO, Jensen Huang, suggested that artificial general intelligence (AGI) might be achievable within five years during a Stanford University economic forum. He clarified that the timeline depends on how AGI is defined, asserting that if it’s about passing human tests, AGI could arrive soon. Huang’s remarks came as Nvidia reached a $2 trillion market value.

Regarding chip factory expansion, Huang acknowledged the need for more fabs but highlighted continuous improvements in AI algorithms and processing, limiting the required number of chips.

I think Nvidia will remain a leader in its field, and deserves its premium valuation. But I can also understand Cathie Wood’s willingness to trim her position, given the dizzying heights this stock has reached of late. I think holding NVDA stock at current levels really depends on an investor’s time horizon. For those thinking long-term enough, Nvidia can still be a buy, but it may pay to be cautious here.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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