I Turned $300 into $250,000 with NVDA – Should I Cash Out or Keep Holding for Dividends?

Nvidia (NASDAQ:NVDA) has been a juggernaut, transforming more than a few investors into millionaires or moving them much closer to the target.

For example, a Redditor on the r/dividends subreddit has seen his $300 investment at $6.72 per share turn into roughly $250,000 — a 2,000% gain based on its current price near $142 per share, and following a 10-for-1 stock split one year ago. 

In his mid-40s, with no debt, other investments, and cash saved for a camp purchase, the Redditor now faces a choice: hold onto his existing NVDA stock for further growth or trade some shares to build a dividend-focused retirement account. With NVDA within shouting distance of its all-time high of $153.13 per share, the decision hinges on balancing its growth potential against the stability of dividend income.

AI Is Still Jet Fuel for Investors

Nvidia’s meteoric rise, driven by its artificial intelligence chip dominance, shows no immediate signs of slowing. Fiscal first-quarter revenue hit $44.1 billion, up 69% year-over-year, with analysts like Wedbush‘s Dan Ives projecting a $175 price target. 

The company’s 7.3% semiconductor market share and innovations like Blackwell Ultra chips fuel optimism. However, risks loom: a 23% price correction in July 2024, China export controls costing $8 billion annually, and competition from Advanced Micro Devices (NASDAQ:AMD) and in-house cloud chips signal volatility. 

NVDA’s forward P/E of 25 and 45% adjusted net margin suggest it’s not overvalued, but the potential for stock price pullbacks to $128 or lower remains.

The Redditor’s goal of a dividend-based retirement account aligns with his debt-free, mid-40s profile, prioritizing income stability over growth yet Nvidia’s 0.03% dividend yield is negligible, making it a poor fit for income generation. 

Dividend exchange-traded funds (ETFs) like the Schwab US Dividend Equity ETF (NYSEARCA:SCHD) with a 3.9% yield, or the Vanguard High Dividend Yield Index ETF (NYSEARCA:VYM) at 2.8%, offer reliable payouts, with SCHD’s focus on quality firms appealing for long-term income. 

However, selling NVDA entirely risks missing further upside, especially since AI adoption is still in the early stages. A full exit also triggers capital gains taxes (around 23%, including investment income tax), potentially reducing the $250,000 to around $195,000 in a taxable account.

Taking a Balanced Approach

I’m not a financial advisor or tax professional, so these are only my opinions, but if the Redditor sells a portion — say, 50% — of his NVDA shares, he locks in $125,000 of profits, securing gains while keeping exposure to chipmaker’s potential. The proceeds can fund dividend ETFs or stocks like JPMorgan Chase (NYSE:JPM) with a 2.1% yield or Realty Income (NYSE:O), which yields 5.6%. This would build a $4,000 to $6,500 annual income stream from $125,000 invested. 

Diversifying reduces reliance on NVDA’s volatility, aligning with the Redditor’s retirement goals. He should assess his overall asset allocation, ensuring 60% to 70% are invested in equities (including NVDA and dividends) and 30% to 40% in bonds or cash, fitting his moderate risk tolerance given that he has  no debt and other investments.

Monitoring NVDA’s performance and market conditions is critical. Technical indicators suggest a possible dip to $128, offering a chance to buy back or hold steady. Macro risks, such as rising 10-year Treasury yields at 4.51%, could divert capital from tech, pressuring NVDA. 

The Redditor should also explore covered calls on their remaining NVDA shares to generate income (for example, $177 per 100 shares at a $141 strike), though this requires learning options trading.

Key Takeaways

Selling just half of your NVDA stake to lock in your gains and using the proceeds to invest in dividend ETFs like SCHD or VYM for steady retirement income is a prudent move. Then, evaluate your portfolio’s allocation, and target a 60% to 70% equities and 30-40% bonds split to match your risk profile. 

Just keep monitoring NVDA’s price action and market trends, considering covered calls for extra income if you are comfortable with options. This strategy balances NVDA’s growth potential with the stability of a dividend-focused retirement plan while leveraging your financial flexibility.

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