Seasoned tech investor Paul Wick of Seligman Investments has recently been reducing his holdings in Nvidia (NASDAQ: NVDA), expressing doubts about the company’s future earnings growth.
Speaking at a UBS Group event in Singapore, Wick mentioned that his enthusiasm for Nvidia had moderated over the past one to two weeks, though he did not specify the extent of his NVDA stake reduction, as Bloomberg reported on June 21.
Legendary investor, who has nearly three decades of experience in technology investment, compared Nvidia’s current situation to Cisco Systems (NASDAQ: CSCO) during the dot-com bubble, highlighting potential risks.
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Wick has concerns about Nvidia’s market concentration
Wick pointed out that Nvidia derives about 60% to 70% of its revenue from its ten largest customers, making it inherently riskier than companies like Microsoft (NASDAQ: MSFT) or Alphabet (NASDAQ: GOOG), which have a more diversified customer base.
“Nvidia is inherently a much riskier company than Microsoft or Google, who have very low customer concentration and thousands upon thousands of customers,” said Wick.
Despite Nvidia briefly holding the title of the world’s most valuable company this week, with its shares tripling over the past year due to artificial intelligence (AI) optimism, some investors, including Wick, remain skeptical about the rally’s sustainability.
Nvidia trades at 43 times its projected earnings for the next year, a valuation higher than nearly all of its peers in the Philadelphia Semiconductor Index (INDEXNASDAQ: SOX), raising concerns about its stock price being over-inflated.
Competition might slump Nvidia’s future growth
Wick, who manages the $13.5 billion Columbia Seligman Technology & Information Fund, also noted that generative AI companies investing billions in Nvidia systems are seeing low returns on invested capital.
Furthermore, many of Nvidia’s biggest customers, such as Alphabet, Microsoft, and Meta Platforms (NASDAQ: META), have been aggressively designing their processors, potentially reducing their reliance on Nvidia in the future.
Despite these concerns, NVDA stock remains one of the top holdings in Wick’s fund, which has outperformed 97% of its peers over the past three years.
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