I’m going to take advantage of today’s pop in Nvidia (NVDA) to sell the shares out of my very short-term Volatility Portfolio tomorrow on my subscription JAM.com site, Tuesday, October 2. The shares closed up at the close today at $447.82, a gain of 2.95% on the day. I initiated the position in the Volatily Portfolio on March 25, 2023. It was up 66% as of the close today

So why sell Nvidia here?

Two reasons.

First, Nvidia is the kind of high price-to-earnings, high growth momentum stock that has been under the most pressure in the recent market.The stock trades with a trading 12-month price-to-earnings ratio of 108. Any slip in the company’s growth rate–or any nervousness in the general market will hammer the stock hard.

Second, today’s pop came on news that Goldman Sachs had added the stock to its “conviction list’ arguing that Nvidia was the “principal shovel supplier the AI Gold Rush.” I happen to agree with that assessment.

But i worry about the word “principal.” Because as I read the market for AI chips, some pretty big dogs have set their sites on winning a piece of that “principal” market share. I think Nvidia has enough of a technology lead–and the market is growing fast enough–so that the company will be able to defend its dominant position in AI chips. But dominant doesn’t mean Nvidia won’t lose any market share. After all, the big dogs coming after Nvidia include Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT). These companies are all big current customers and they’re all spending big to develop their own AI chips.

I think Nvidia understands th dimension and nature of the challenge. In its recently reported second quarter, Nvidia’s accounting raised some eye brows because the company helped CoreWeave, a company building out a special purpose AI Cloud built around Nvidia’s H100 chip secure a line of credit secured by Nvidia chips. To those of us who remember the spectacular crash of Nortel in the Dot.com bust, this line on the company’s financial statements raised a red flag: Vendor financing, the horror. But what interest me about the deal–CoreWeave ordered $2.4 billion of H100 chips to continue building out its cloud–is Nvidia’s decision to help fund a potential computer to some of its biggest customers. Think it might be sign that Nvidia wants to hedge its bets against some of those customers successfully building their own chips? That thought crossed my mind. And I think that Nvidia is in for a real dogfight over market share in AI chips. When the dust has cleared, I expect Nvidia to have retained the “principal”share of that market. But until th dust clears a bit, I think I’ll take my profits and wait for that 108 PE to come down a bit.
vately