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Investor Paul Wick Reduces Nvidia Holdings Amid Concerns Over Earnings Growth
Paul Wick of Seligman Investments has recently begun trimming his stake in Nvidia Corp., expressing doubts about the company's future earnings growth. During a UBS Group AG event in Singapore, Wick noted that his enthusiasm for the tech giant has lessened over the past couple of weeks. However, he did not specify the extent of the reductions made.
Wick, a veteran in the tech sector for nearly three decades, drew comparisons between Nvidia and Cisco Systems Inc. during the dot-com boom. He highlighted that high valuations and a lack of recurring revenue add to the inherent riskiness of Nvidia's business model. According to Wick, about 60% to 70% of Nvidia's revenue comes from its top 10 customers, making its revenue stream more vulnerable compared to companies like Microsoft or Google, which have a wider customer base and lower customer concentration.
Recently, Nvidia briefly held the title of the world's most valuable company after a significant surge in its stock price, driven by investor optimism around artificial intelligence. Despite this, Wick remains cautious, one of the few dissenting voices alongside Research Affiliates LLC’s Rob Arnott. Nvidia's shares currently trade at 43 times projected earnings for the next year, which is a higher valuation compared to most peers in the Philadelphia Semiconductor Index.
Wick pointed out that generative AI companies, which have invested heavily in Nvidia systems, show low returns on invested capital. Moreover, several of Nvidia’s largest customers, including Alphabet Inc.'s Google, Microsoft Corp., and Meta Platforms Inc., are actively developing their own processors, posing an additional challenge for Nvidia.
Despite these concerns, Nvidia remains a significant holding in Wick's $13.5 billion Columbia Seligman Technology & Information Fund, which has outperformed 97% of its peers over the past three years. However, Wick emphasized that Nvidia needs to demonstrate sustained and robust growth to justify its current valuations.
