Nvidia Corp. has recently faced concerns from Seligman Investments’ Paul Wick about its earnings growth prospects, leading him to reduce his holdings of the company. During a video call at a UBS Group AG event in Singapore, Wick expressed that his enthusiasm for Nvidia has decreased over the last one to two weeks, although he did not disclose the exact amount of the stake that has been reduced.
Wick, who has been investing in the tech sector for around three decades, compared Nvidia to Cisco Systems Inc.’s boom during the dot-com bubble, citing lofty valuations and the lack of recurring revenue as factors that make their businesses riskier. He also highlighted Nvidia’s substantial revenue dependence on its top 10 customers, accounting for 60% to 70% of its revenue as a significant risk factor. In contrast, companies like Microsoft and Google have a wide customer base, minimizing their risk profile.
Despite Nvidia briefly becoming the world’s most valuable company and its share price tripling in the past year, investors like Wick and Rob Arnott from Research Affiliates LLC are skeptical about the sustainability of its rally. With a price-to-earnings ratio of 43 times projected earnings over the next year, Nvidia is trading at a premium compared to its peers in the Philadelphia Semiconductor Index.
However, Wick also pointed out that generative AI companies that heavily rely on Nvidia systems have a low return on invested capital. He mentioned that some of Nvidia’s largest customers, such as Google, Microsoft, and Meta Platforms, are actively developing their own processors. Despite his reservations, Nvidia remains one of the top holdings in Wick’s fund
