Personal Finance

I bought NVIDIA's stock and now it's half of my portfolio's value - should I sell some to diversify?

Joey Frenette

Published: November 21, 2024 9:09 am

Nvidia (NASDAQ:NVDA) stock’s unprecedented multi-year surge has minted a lot of big winners. And if you’re one of many folks who were fortunate to invest in the AI chip giant at any point in the last five years, you’re probably looking at some pretty enviable gains. Indeed, Nvidia still has a front-row seat in the AI revolution — one that it’s not about to give up anytime soon as the Blackwell era of chips begins.

Undoubtedly, if you’re one of many investors who held onto shares of NVDA despite the scorching momentum and rising valuation, congratulations, you’ve likely outperformed by a landslide. As impressive as the stock chart looks today, I’d argue that it’s the road ahead that you should focus on rather than the rearview.

Sure, you can admire the view from behind, but it will do you no good as an investor. And if you’re an investor who’s seen your NVDA position grow to contribute more than half of your portfolio’s value, like this fortunate Reddit poster, you should strive to bring it back into balance, even if you’re still a believer in CEO Jensen Huang and the firm’s ability to thrive in the Blackwell and Rubin eras on the horizon.

Key Points About This Article

• Nvidia stock’s run has brought many portfolios out of balance.
• Despite catalysts ahead, it’s prudent to take some profit off the table to reduce single-stock risk.
• Also: Are You On Track to Retire? Take This Quiz and Find Out ^(Sponsored)

Nvidia stock still has what it takes to gain.

There is no shortage of NVDA stock bulls right now, with the name breaking out following the Trump presidential victory. In fact, one notable bullish pundit, Ben Reitzes, managing director at Melius Research, thinks more gains are ahead for Nvidia as he views Blackwell as capable of experiencing an iPhone moment. Indeed, that’s a profound statement, in my opinion. If you sold Apple (NASDAQ:AAPL) stock when the first iPhone launched, you probably kicked yourself as the new product category eventually crowned the company as the world’s largest.

Today, Nvidia is the largest company in the world, and if Blackwell lives up to the hype, I wouldn’t be surprised if there’s more upside ahead.

Further, NVDA stock can appear cheaper on a price-to-earnings (P/E) basis as earnings growth keeps up with the substantial price appreciation. Today, shares go for 69.3 times trailing price-to-earnings (P/E). It’s not cheap, but also not absurd for a company that’s growing at an unprecedented, though likely unsustainable, rate.

Taking on excessive single-stock risk isn’t appropriate, in my view.

As we enter another quarterly earnings checkpoint (November 20, 2024), expectations could easily fall short. And if anything less than perfection and optimism is unveiled, the stock could be in for a nasty slide.

Though I am bullish on the long-term prospects for NVDA, I can’t say I’d be too comfortable having the name contribute over half of my portfolio. Indeed, diversification is key to keeping new investors out of trouble. And unless you’re willing to see a double-digit percent of your portfolio be wiped out overnight, I’d look to trim into the NVDA position, as much as it hurts to do.

Though I’d suggest chatting with a financial adviser about the matter, I do believe they’d agree with me in saying it’s time to cut that hefty position down. Even the great Warren Buffett had the discipline to trim his overwhelming Apple position over at Berkshire Hathaway (NYSE:BRK-B) after years of appreciation. And though he could be proven wrong for selling, at the very least, his portfolio will be diversified enough to ride out economic hailstorms that can show up at any time.

The bottom line

In short, there’s way too much single-stock risk in letting an already massive NVDA position keep running into the new year.

Though you could kick yourself for selling ahead of Blackwell, I’d argue that, at the very least, you won’t be in a panic should the NVDA trade reverse in a hurry over near-term factors that don’t mean all too much in the grander scheme of things. Perhaps selling off a partial position (think 20-50%) makes sense so that you can be a winner either way. Personally, I’d lean towards selling half a position (or more) so you can book a nice profit while you let the rest run.