NVIDIA Stock Continues to Rise: Should Investors Take Profit?

If you got the impression from the first few days of January that ‘The Magnificent Seven’ wouldn’t be as spectacular in 2024, think again. NVIDIA (NASDAQ:NVDA) stock surged 6.43% on Monday, sparking a rally on the Nasdaq 100.

Buying every dip in large-cap stocks like NVDA paid off spectacularly well last year. However, investors should avoid falling into the recency bias trap. A strategy that worked recently doesn’t necessarily mean it will continue to work.

At the very least, investors should try to figure out why NVIDIA stock is back in rally mode. After careful consideration, the wisest strategy now may be to take some chips off the table and hold on to the cash for the next opportunity.

Nvidia unveils new AI chip for PCs

In 2022, the personal computer (PC) market felt virtually non-existent. After all, Millennials and Gen Z/Zoomers do everything with their smartphones these days. Yes?

Not necessarily. Intel recovered to some extent by focusing on PC chips equipped with artificial intelligence (AI) functions in 2023. Following the generative AI trend, Intel has shown that the desktop and laptop computer market may not be dead after all.

Now, NVIDIA appears to be making major inroads into the PC market with its own lineup of AI-enabled chips. If any company can lead the new renaissance of AI-based PC components, it’s industry darling NVIDIA.

NVIDIA took the opportunity to unveil several new AI chips for PCs through a presentation at the annual Consumer Electronics Show (CES) trade show. The company’s GeForce RTX 40 Super series graphics processors include the high-end RTX 4080 Super starting at $999, the RTX 4070 Ti Super starting at $799, and the RTX 4070 Super starting at $599.

According to reports, the RTX 4080 Super is 1.4 times faster than NVIDIA’s RTX 3080 Ti graphics processor, and the RTX 4070 Ti Super is 1.6 times faster than NVIDIA’s RTX 3070 Ti processor. NVIDIA’s new GeForce RTX 40 Super series processors will be available on January 31st.

NVIDIA’s newly unveiled AI-enabled PC chip is primarily aimed at video game enthusiasts. NVIDIA Vice President Justin Walker declared that these products would offer “massive” improvements over systems powered by Intel chips. Therefore, NVIDIA is not afraid of competing directly with Intel in the PC component market.

Matt Wuebbling, NVIDIA’s vice president of global GeForce marketing, assured investors that the company’s latest GeForce RTX Super Series graphics cards will “prepare users for the wave of generative AI apps coming to PC.” However, it remains to be seen whether the performance can live up to expectations.

NVIDIA’s chips for China

Additionally, NVIDIA revealed plans to begin mass production of AI chips for the Chinese market in the second quarter. To be named the H20 chip, the product is specifically designed to comply with the U.S. government’s restrictions on exports of AI chips to China.

These developments, as well as NVIDIA’s new AI-enabled PC chips, have likely contributed to the recent rise in NVDA stock price. After all, China contributes about 20% of NVIDIA’s revenue. So if the company can commercialize a product in China that complies with the restrictions, it would be a huge coup for NVIDIA.

The H20 isn’t the only cap-compliant chip NVIDIA plans to commercialize in China. The company is also developing two other chips for this purpose: L20 and L2.

NVIDIA will have to walk a fine line here. If these AI-enabled chips are too powerful, they will not comply with export restrictions imposed by the United States. On the other hand, if it isn’t powerful enough, it’s hard to imagine that Chinese customers will want to buy it.

How much can NVDA stock price rise?

Without a doubt, the market is starting to price in enthusiasm for NVIDIA’s upcoming products. This raises concerns about valuation. Surprisingly, NVIDIA’s GAAP-measured 12-month price-to-earnings (P/E) ratio is currently 68.83x, compared to the sector average P/E ratio of 27.66x.

The financial press generally believes that NVDA stock will continue to rise after its recent all-time high. That’s almost certainly true, but value-focused investors have to wonder whether the risk-reward balance is favorable at this point.

Ultimately, short-term traders could try to profit more from NVIDIA stock in the coming weeks as the market anticipates the company’s future products. But for long-term investors, taking profits isn’t a terrible idea, as it will be difficult for the seemingly omnipotent NVIDIA to live up to the hype it has generated in 2024.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.