Down 6% last month! Is it time to sell my Nvidia stock?

Nvidia has been a star stock due to its blistering performance lately. But last month the shares took a tumble. Should this Fool be panicking?

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It’s not often Nvidia (NASDAQ: NVDA) is making headlines for its stock price falling. So, when the shares fell 6% last month, it’s safe to say it grabbed my attention.

That being said, its weak performance in July hasn’t made much of a dent in its gains this year. During 2024, the stock is up a whopping 142.9%. Zooming out, it has risen 150.4% in the last 12 months.

Nvidia has taken the market by storm in recent times. No doubt some lucky shareholders have become rich.

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But with its share price being volatile last month, is that a sign of what’s to come? As a shareholder, is now the time for me to take my profits and get out?

Volatile spell

It was a topsy-turvy month for the chipmaker. Nvidia entered July at $124.3 and finished at $117.1. It rose as high as $134.9 and fell as low as $103.7.

When a stock rises as quickly as Nvidia has in the past couple of years, some volatility should be expected. In the stock market, peaks and troughs are inevitable.

Cause for concern?

But should its performance in July be a cause for concern for investors? Potentially.

I’ve voiced my worry about Nvidia’s valuation over the past couple of months. While I understand that many tech stocks tend to trade at a premium, with a price-to-earnings (P/E) ratio of 68.5, Nvidia does look particularly expensive.

I guess one of the best ways to judge just how pricey the stock is right now would be to compare it to the remaining ‘Magnificent Seven’ of giant US tech stocks. So, let’s do just that.

The average P/E ratio for the group is 43.1. The highest, excluding Nvidia, is Tesla (61.8). The lowest is Alphabet (24.6). Based on that, Nvidia could be deemed overpriced. There’s a threat that its current valuation could prompt a share price correction.

Impressive performance

Then again, who’s to say the stock can’t just keep soaring?

The company has been flying, consistently beating analysts’ expectations. Its last update came back in May. For the quarter, revenue rose to $26bn, up 18% from the previous quarter and a staggering 262% year over year. Jensen Huang, founder and CEO, stated that “the next industrial revolution has begun”.

Time to sell?

I recently offloaded some of my Nvidia shares. My position was up by over 200% and it made sense to rebalance my portfolio. I used the cash to buy more HSBC shares with their 7.2% dividend yield.

Despite its lofty valuation, I do see long-term value in Nvidia, even at today’s price. So, for now, I’ll be keeping my remaining shares.

Its cutting-edge innovation will keep it at the front of the pack in the booming artificial intelligence industry. That bodes well for future growth prospects. And Huang is a visionary leader.

My only concern is that Nvidia can’t keep up this impressive level of growth forever. When it inevitably slows, we could see its share price pulled back.

I’m holding on to my shares. But I won’t be adding to my position, even with the stock taking a hit in July.

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This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Charlie Keough has positions in Nvidia. The Motley Fool UK has recommended Alphabet, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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