So now the next question becomes, when should you sell Nvidia stock?

Many investors have made a great deal of return on their investment in Nvidia stock, and so now they're wondering, if now's the time to sell it, at what price should they sell it, what specifically should they look for when deciding when to sell Nvidia stock?

So I'll cover those questions in this video.

I'll go over what I look at when I'm considering selling an investment and taking profits in an investment.

So let's get started.

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So like I highlighted, Nvidia stock price has absolutely exploded.

I have here a 10-year chart of Nvidia stock price on a split-adjusted basis, and you can see just in the last year and a half alone, the stock price has tripled from less than $40 per share up to $120 per share as of this recording.

If you go back further, the stock price was closer to $10 or $5 per share in 2019 on a split-adjusted basis.

And so Nvidia has really gained tremendously over a relatively short period of time.

And that has a lot of investors concerned.

It has a lot of investors worried about, should they sell it now?

They don't want to feel like they missed their opportunity to sell.

They don't want to feel like this is the high-water mark, and if they don't sell now, the stock price drops.

Are they going to feel regret?

Perhaps you might.

Perhaps you might.

But that's not what I look at when I'm deciding if I should sell or buy or hold a stock.

The market price is important, yes, but what I look for more importantly is what I'm getting in return.

What I'm getting in return is more important than the price.

Because similar to when you go to a store, let's say you're shopping for one tire.

And one tire for your car is $100.

But then you go back to the store, and now that tire, or a set of tires, instead of it being $100, there's now a set of tires for sale for $300, for four tires.

When previously you could only buy one tire for $100, now it's four tires for $300.

So the price per tire has actually decreased, but the price increased to $300.

And that's not unsimilar to the way I evaluate stocks.

Sure, the price might increase, but what you're getting in return has also changed.

You're not getting the same thing you were getting in 2020.

You're getting a different investment with different characteristics, with a different profit profile, with different cash flow, with different competitive advantages.

So those have all changed in those years.

So if you're just looking at the price, you're only looking at one side of the equation.

You're not looking at what you're getting in return to evaluate the total value.

And so I always suggest to look at the price, but also what you're getting in return.

And the key things to look at what you're getting in return is earnings per share, or free cash flow, or sales, if you're looking at a company that doesn't have consistent profitability.

But more importantly, the one I look at, the metric I look at most is the forward price to earnings.

To tell me what I'm getting for the price that I'm paying in with NVIDIA, the forward price to earnings ratio hasn't changed all that much.

It hasn't changed as dramatically as the stock price has changed.

As you can see here, the forward PE is at 34.

It's been right around 30 all year long.

So even though the price has been increasing, the valuation has remained relatively the same because NVIDIA's earnings have increased.

So as an investor, they're giving you a lot more in return.

So the market price is higher, but what you're getting in return is also a lot more.

It's like going to a store and instead of just buying one tire for $100, you're buying four tires for $300.

You're paying a higher price, but you're getting more in return.

That's what's happening with NVIDIA.

You're paying a much higher price than you were three years ago, but you're getting much more.

And I'm speaking on a split adjusted basis.

So for that reason, NVIDIA's price per dollar of earnings hasn't changed all that much.

You're not paying that much more for a share of NVIDIA in terms of the earnings you're getting.

In fact, the earnings expectations have been rising.

So I have here what the Wall Street analysts are forecasting for earnings per share for NVIDIA.

And keep in mind here, these numbers here from 90 days ago were on a pre-split basis.

So the current estimate here is just one tenth of the previous estimate because you've now got a ten for one split.

And so if you look at 90 days ago, the analysts that were following NVIDIA stock, they were forecasting its next year earnings per share of $29.87.

And that increased to $30.63, $31.30, $35.66, and now $36 if you look on a split equivalent basis.

So their earnings per share expectations have continuously increased over the last 90 days as the stock price has increased.

So the stock price increase has been justified by an increase in earnings per share and in earnings per share expectations for the future.

It's similar story when you look at the current year earnings per share from $24.50 expected to $24.48, to $24.85, $26.99, and now $27.10.

So as enthusiastic as investors have been about NVIDIA stock and its profit expectations, they've kept going higher and higher and higher because the results keep coming in much better than expected.

The results just keep getting better and better and better.

Here's a chart of NVIDIA's cash flow from operations on a quarterly basis.

Look at that explosion here in cash flow from operations. $15.35 billion in cash flow from operations in one quarter.

Prior to 2024, they had never achieved a quarter even close to $4 billion in cash flow from operations.

They've now delivered a quarter with $15.35 billion.

So roughly four times the cash flow from operations in the most recent quarter and the company expects this to continue for at least the foreseeable future, according to what NVIDIA is saying.

Management is saying that demand for its products continues to outpace supply.

And they introduced a new innovation this year, the Blackwell technology, which will be going in as we speak.

It's going in, will be installed by the end of the year.

And then they already announced the next generation to Blackwell, the Rubin technology, which will be coming out next year.

So as competition is trying to catch up to NVIDIA's older generation technology, they're already two generations ahead with newer technology.

So all that being said, the stock price is much higher, I agree, but the company is in a much better position than it was to justify that increase in stock price.

So to answer the question, when should you sell NVIDIA stock?

When you start to notice this valuation getting extreme, when you start to notice this forward price to earnings ratio rising closer to 45, closer to 50, and when you notice the earnings per share expectations starting to decrease instead of increase, that's when you should start to consider selling NVIDIA stock.

When the stock price increases, start to disconnect from the fundamental improvements in the company's profitability and cash flow.

That's when you should start to consider selling NVIDIA stock.

As of right now, I'm not seeing any evidence of that.

In fact, I'm seeing the opposite.

I'm seeing the earnings prospects improving as this year has progressed.

So far, I don't see any signs of difficulty for NVIDIA stock and NVIDIA stock investors.

Now, that might change soon and rapidly and out of nowhere, something unexpected.

There's always the risk of that happening, so that's something to keep in mind.

But in terms of the actual profit and business and what's ahead, the company has delivered profit growth to support the increases in stock price.