Nvidia (NASDAQ: NVDA) is one of the best-performing companies in recent years. A $1,000 investment made ten years ago is now worth a stunning $247,000. Even if you had waited five years to invest the $1,000, you could today sell your shares for $33,000.

Furthermore, investing in Nvidia stock has meant defying bears with its supremacy in the artificial intelligence (AI) chip sector and consistent stock price increase. Investors often receive superior total returns when they enable winners to continue winning. As a result, calls to sell shares in such circumstances may appear illogical.

However, even the most confident growth stocks tend to stagnate or turn negative over time. Here are three strong reasons to cut your Nvidia holdings and profit.

1. Reducing Risk

First and foremost, congrats on achieving tenfold or more profits. In some of the finest growth stocks, such a milestone typically takes years to achieve, if it ever occurs.

However, often the most difficult aspect of investing is managing winners. Some, like as Amazon, continue to expand on a decades-long track record of success. In contrast, one-time darlings such as Cisco Systems have failed to recover to all-time highs set decades ago. As a result, while you want your winners to keep winning, identifying a “winner” is not always straightforward.

The compromise may be to sell enough stock to recoup your initial investment, particularly if you’ve made a tenfold or greater profit. This eliminates the possibility of net losses with Nvidia. Furthermore, if the sell represents 10% or less of your Nvidia holdings, it prepares you to continue earning significant profits from Nvidia if the stock continues to rise.

2. Diversity.

Recovering your original seed money also allows you to construct a more diverse portfolio. Investment gurus often recommend diversification in individual equities since failure to do so puts an investor overly reliant on the success of a single firm.

If your Nvidia investment has increased tenfold or more, it is most likely a significant portion of your portfolio. Depending on the performance of your portfolio, it may suddenly account for the bulk of your assets, even if it only made up 2% or 3% of it in the start.

These circumstances warrant minimizing one’s reliance on Nvidia. Nonetheless, the method is both artful and scientific.

One example is Bill Ackman’s Pershing Square fund, which invested in Chipotle Mexican Grill. Since the end of 2016, Pershing Square’s Chipotle investment has decreased from around 2.9 million shares to 744,000 as of the end of the first quarter.

By selling so many shares, Pershing Square missed out on enormous returns. However, given Chipotle remains 20% of its portfolio, this was probably the cost of minimizing reliance on a single stock.

Finally, your particular allocation is determined by your level of comfort with Nvidia and overall risk. Nonetheless, if you want to sell to diversify your portfolio, now is perhaps an excellent moment.

3. Valuation

Diversification is also advantageous due to current valuations.

Admittedly, this can be challenging because values differ. Net income increased by 628% in Nvidia’s first quarter of fiscal 2025 (ending April 28) compared to the previous year. This resulted in a price-to-earnings ratio of 70 and a forward P/E ratio of 44. Given the growth rates, many investors will not view these earnings multiples as excessive.

Nonetheless, some valuation measures provide some caution signs. Despite continual stock price gains, the price-to-sales (P/S) ratio has grown to 38. Given that the S&P 500’s average P/S ratio is near historical highs at 2.9, it is difficult to justify such levels, even at a quick growth rate.

Furthermore, Nvidia stock is trading at a price-to-book value ratio of 60! In instance, competitor Advanced Micro Devices sells for less than five times its book value. Furthermore, even with recent rises, Qualcomm trades at a price-to-book value ratio of less than 10. Nvidia outperformed these firms, however quantifying the difference in this statistic may be challenging.

Selling Nvidia stock.

Finally, such issues show the complexity of managing a winner like Nvidia. As the premier AI chip manufacturer, it should be a good investment for some time.

However, outperformance does not eliminate all reasons to reduce ownership. In reality, the level of its success may persuade investors to take such action.

In the end, you want your winners to continue winning. Still, regardless of your decision about Nvidia stock, now is an opportune moment to examine your risk tolerances, analyze the health of your stock portfolio, and take steps to bring safety and balance to your assets.

Should you invest $1,000 in Nvidia now?

Before you buy Nvidia stock, consider this.

The Motley Fool Stock Advisor analysis team has picked the top ten stocks for investors to purchase now. And Nvidia was not one of them. The ten equities that made the cut might provide massive gains in the next years.

Consider when Nvidia published this list on April 15, 2005… if you invested $1,000 at the time of our advice, you’d have $740,886! *

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