SoftBank just sold out of Nvidia. Should you?
Confidence in shares of Nvidia is in question after SoftBank’s decision to relinquish its stake in the high-flying stock. Nvidia briefly tumbled nearly 4% Tuesday after the Japanese investment firm said it zeroed out its position in the AI chipmaker for $5.8 billion. That left investors wondering if SoftBank’s decision to exit the stock was a bad omen for Nvidia’s future stock performance, or if it was simply taking profits on a market leader. “It’s eyebrow raising,” said Jay Woods, chief market strategist at Freedom Capital Markets. NVDA 1D mountain Nvidia, 1-day The sale came after SoftBank said it was pouring resources into OpenAI, the Sam Altman-led startup behind the ChatGPT artificial intelligence bot. But even without directly owning 32 million shares, SoftBank’s fate is still intertwined with the chipmaker given the Japanese company’s work on projects including Stargate that use Nvidia technology. Laying the groundwork SoftBank’s decision should be viewed more as a signal of OpenAI preparing to go public in the near future rather than as red flag for Nvidia’s outlook, Woods said, calling Tuesday’s pullback a healthy move ahead of earnings scheduled to be reported next week. “I don’t think it is a direct shot at Nvidia. I don’t think it’s going to impact the direction they continue to go,” Woods said. “If anything, it gives investors a reason to buy it on the cheap today.” Notwithstanding Tuesday’s weakness, Nvidia is still up 66% in just the past six months. Viewed as the main beneficiary of the AI boom and a favorite on Wall Street and Main Street alike, Nvidia has soared more than 1,085% in the past three years. NVDA 5Y mountain Nvidia, 5-year chart In some corners, however, SoftBank’s decision can add to concerns that Nvidia and other major AI players are spending too much and that valuations have climbed too high. Michael Burry, ” The Big Short ” investor who recently went short technology, said on Monday that some AI hyperscalers could be using questionable accounting methods to artificially lift profits. Although he did not name Nvidia as among those that could see an earnings slowdown, he said purchases of its products have helped drive the trend. “Massively ramping capex through purchase of Nvidia chips/servers on a 2-3 yr product cycle should not result in the extension of useful lives of compute equipment,” he wrote on X . “Yet this is exactly what all the hyperscalers have done. By my estimates they will understate depreciation by $176 billion 2026-2028.” Wells Fargo strategist Douglas Beath on Monday downgraded his investment opinion on the S & P 500 information technology sector to neutral from favorable. Though technology spending will keep rising in 2026, the best way to play the group is by occasionally taking profits to shift into other favored areas, such as utility and industrial stocks, Beath wrote. Information technology is among the best-performing S & P 500 sectors this year, climbing more than 26%. “Valuations have surged, and we are wary that overly bullish sentiment toward the group and elevated expectations make the sector susceptible to disappointment in the near term,” Beath wrote to clients. “Some AI bellwethers reported massive AI-related capex spending in the third quarter, but investor concerns about future payoffs and debt financing have rattled markets.”
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