Nvidia Corp (NASDAQ: NVDA) shares have been more or less the headline act in global stock markets this year.
The meteoric rise of the United States-based software company, whose technology and growth are underscored by tailwinds from artificial intelligence (AI), saw it explode on the charts.
It ran from US$40 per share at the end of October last year and hit highs of US$130 apiece in June 2024 on a split-adjusted basis.
Buying has tempered for the time being. One former buyer is the multi-billion-dollar fund Appaloosa Management, which recently sold the bulk of its Nvidia holdings.
Let's take a closer look.
Appaloosa sells Nvidia shares
Appaloosa president David Tepper said the company sold most of its Nvidia shares earlier this year.
Speaking to CNBC's Squawk Box program last week, Tepper laid out the reasons behind the sale. Chief among them were concerns over Nvidia's valuation.
We thought the stock [valuation] was too high at the time and would come down. Unfortunately, we did buy it when it did come back down.
With those stocks like Nvidia there's a question – do you have enough power for the growth? Do you have the next generation models that can take their chip?
So, it looks great in 2024 and 2025, [but]I have no idea in 2026 and 2027. [But] I don't believe analysts, I don't believe any analysts, I don't trust myself. I just don't know how you know – there's too much.
For reference, the AI company currently trades at a price-to-earnings ratio (P/E) of 57 times. Tepper went on to note the wide variance that existed in the various forecasts on Nvidia's earnings growth.
Interestingly, the billionaire fundie is not entirely bearish on Nvidia or the broader AI sector. He mentioned the firm was exploring opportunities in adjacent industries to AI, such as energy.
Without specifying, the fund manager said the energy demand would likely need to be filled with natural gas, as existing nuclear capacity was still too low.
If you're going to meet these power needs of what is needed for AI, you're going to have to use natural gas.
If you take a current nuclear plant and think your going to get these things, it will never get by these individual [public utility commissions] PUCs.
It can't – it will hurt the individual consumer too much.
What's next for Nvidia?
Despite Tepper's sell-off, Nvidia shares have continued to perform. The company remains a dominant player in the AI space.
Its graphics processing units (GPUs) are leading the charge in training AI models like ChatGPT, among others.
Nvidia is also branching out into AI inference – using trained models to generate new insights – a fast-growing segment that accounted for more than 40% of its data centre revenue last quarter.
Speaking of growth – to date, it has been nothing short of eye-popping for Nvidia.
The company reported a 122% increase in revenue year over year for the second quarter of fiscal 2025, driven primarily by demand for its AI and data centre products.
Analysts forecast Nvidia's earnings to increase at a compound annual growth rate (CAGR) of 52% over the next five years, which could impact Nvidia shares.
But this is where Tepper's concerns come in. These are bombastic projections that rely on optimistic inputs, in my view. No saying they aren't achievable – but the margin for error could be high.
Tepper says this is a risk, as there are so many moving parts that it could be difficult to make sense of it all beyond a 2–3-year forecast.
We're trying to understand what really sense, and what doesn't make sense, we are trying to figure that out right now. But it's fascinating to me.
Foolish takeaway
David Tepper's decision to sell a significant portion of his company's Nvidia shares should serve as a reminder that valuations matter.
Time will tell what lies ahead for Nvidia. The stock is up nearly 179% over the past year.
