A top Nvidia shareholder reveals his trigger for selling growth stocks

Nvidia shares have continued to soar this year, up more than 80%. But one of its top shareholders has revealed why they’ve been selling the stock. Jennison Associates, the 15th largest shareholder of Nvidia, was an early investor in the chipmaker and currently holds $7 billion worth of shares, or 0.57% of the company. That’s down from a peak of 0.95% in the last quarter of 2022, according to LSEG data. Raj Shant, managing director at Jennison Associates, told CNBC Pro that the investment firm has been selling its position in the AI chip maker to manage risk despite remaining optimistic about its long-term prospects. “We emphasize risk management much more than many growth investors,” Shant told CNBC Pro. He explained that Nvidia had quickly increased to nearly 10% of Jennison Associates’ Global Equity Opportunities strategy due to the stock’s 238% rise in 2023, which necessitated selling the stock to bring its allocation back to around 6%. “We’re actually no less optimistic than we were, but we’re [also] not more optimistic than we were then,” he added. When should investors sell growth stocks? When asked about the right time to sell a growth company like Nvidia, Shant pointed to the firm’s latest research note titled “Buy and Hold Forever?” It explains when the investment firm would sell a position: either to buy shares in more attractive growth stock, to take profits, or if the fundamentals change. “We are not satisfied holding a company — even if it is successful — if we believe there are more attractive opportunities available,” the note said. Shant stressed that as long-term investors, short-term volatility wouldn’t trigger a sell signal at Jennison. The chipmaking giant’s stock briefly entered correction territory after shares fell 10% last week from their most recent all-time closing high. NVDA 1Y line Instead, the former fund manager said fundamentals, such as insufficient growth, are more significant drivers of Jennison’s triggers to abandon a stock. He also cautioned that the reason behind an earnings disappointment is likely to be more important than the disappointment itself in evaluating an investment’s future. “When you look at disappointments, you have to look: is it demand … or is it supply? [As in] they can’t actually make enough to meet expectations in that quarter,” Shant told CNBC’s Squawk Box Friday. “One is very negative for the medium-term investment thesis, but the other is generally temporary, transitory and can generally be fixed with good management.” Shant cited the example of companies like Nvidia, which he said could be laying the foundation of a whole new industry in generative AI, and obesity drug companies like Novo Nordisk , which Jennison Associates also has positions in. He explained that when these types of companies are growing fast and disrupting whole industries, there is a risk that orders start to slip or fade in a particular quarter. “But actually, more likely, is that they can’t make enough,” to meet demand, Shant said. “There comes a quarter where they don’t deliver as much as the analysts are expecting.” Shant believes long-term investors should overlook such bumps. Is it time to buy Nvidia now? When asked if he would buy Nvidia’s stock right now, Shant shied away from providing investment advice but expressed confidence in the company’s medium-term prospects. “If you’re willing and able to close your eyes and not fret about the week-to-week or month-to-month over the next year or two? Yes. Will it outperform the market? Yes,” he said. Jennison Associates’ Global Equity Opportunities strategy, which holds about 35 stocks, significantly outperformed the MSCI AC World Index in 2023, returning 41.6% compared to the index’s 22.2%. Nvidia remains the strategy’s second-largest holding, with a 6.1% allocation. Despite Jennison Associates trimming its position, other institutional investors have been buying shares of Nvidia. Norges Bank, which manages the world’s largest sovereign wealth fund, invested in the company during the fourth quarter of 2023 and now owns Nvidia shares valued at about $15 billion. Other notable investors in Nvidia include Morgan Stanley and Barclays, which also increased their stake throughout last year’s second half and now own shares worth billions.