Founder of Wealth Watch JA, Julian Morrison, says NVIDIA investors might need to start considering stepping back from the stock.

“It might be time to take some gains, take some money off the table and go in a different direction,” he said.

The US-based chip maker has seen massive growth over the last five years and now makes up about 8% of the S&P 500. That is the biggest share of any single stock in the index. 

Speaking on Taking Stock, Morrison explained that NVIDIA will now play a role in the overall US market.

NVIDIA designs and programs chips that power artificial intelligence, gaming, and data centres. Investors who bought the stock years ago have seen huge gains.

Morrison said there are clear benefits to owning Nvidia. The stock is very popular and easy to trade. 

“If you want to trade options on NVIDIA, it’s very easy because the stock is so liquid,” he explained. Liquidity means investors can get in and out of trades quickly, and options make it possible to buy into the company without paying the full stock price. NVIDIA’s earnings have also grown a lot, which helps keep its value in line with other big tech companies.

But he also pointed out the risks. NVIDIA’s price has risen so fast that it may not have as much room to grow. He explained that when stocks climb too quickly, they can fall just as suddenly. A sudden drop in Nvidia could pull down the entire S&P 500 because the company is now such a big part of it.

For investors who still want to stay in the chip space, Morrison pointed to other companies like AMD and Texas Instruments. Texas Instruments, for example, is often known for calculators, but it also makes chips for weapons and defence systems.

“The key is not to let your portfolio lean too heavily on just one stock,” he said.