Should Investors Follow Druckenmiller's Lead and Trim Nvidia Holdings Before Earnings Report?

Should You Follow Billionaire Stanley Druckenmiller and Sell Nvidia Stock Before Thursday?

The hedge fund titan dumped most of his Nvidia stake. Was it the right move? Nvidia (NASDAQ: NVDA) has been the hottest stock of the artificial intelligence (AI) boom, jumping more than 500% since the start of 2023, but some of the smartest investors now seem to be changing their tune on the skyrocketing stock.

Billionaire Stanley Druckenmiller's Position

Druckenmiller, whose hedge fund generated an average annual return of 30% for nearly 30 years, dumped more than 70% of his stake in Nvidia in the first quarter, according to Duquesne's 13-F filing. The AI chip stock fell from his third-largest position to his seventh.

In an interview on CNBC, the famed investor said it was time to take profits, noting: "We've had a hell of a run. A lot of what we recognized has become recognized by the marketplace now."

Nvidia's Business Performance

In the fourth quarter, revenue jumped 265% to $22.1 billion, led by 409% growth in its data center segment. Adjusted net income spiked 491% to $12.8 billion, and its first-quarter guidance forecasts continued strong performance with revenue of around $24 billion, and adjusted net income of $13 billion.

Nvidia's AI leadership remains rock-solid, and overall AI demand continues to grow, but Druckenmiller believes the stock is now fully valued, questioning its upside potential.

Should You Sell Nvidia Stock before Earnings?

If you've held Nvidia stock since the launch of ChatGPT, taking some profits off the table might be prudent. However, the outlook for the stock still seems positive as its market dominance and strong financial performance could support further gains, despite valuation concerns.

Nvidia's valuation looks reasonable at a forward P/E of 37, comparable to Microsoft, even though it's expected to deliver significantly faster growth.