SoftBank Sold Its Entire Nvidia Stake. Is This a Warning Sign for Investors?

Japan-based SoftBank (OTC: SFTB.Y) is one of the world's largest investment holding companies. It has hundreds of notable companies in its portfolio, including TikTok's parent company ByteDance, plus DoorDash, Fanatics, Chime, IonQ, and until recently, Nvidia (NASDAQ: NVDA).

SoftBank has dabbled in Nvidia during two different phases. It first invested in the company in 2017, buying around $4 billion worth of shares before selling its stake in 2019, making around $3.3 billion in the process. It then began acquiring Nvidia shares again in 2020, reaching 32.1 million shares owned this year. However, the company recently revealed that it sold all of its shares for around $5.8 billion.

Considering how influential SoftBank can be and the microscope that it's often under, the full exit from Nvidia caused many investors to wonder if it was a warning sign.

Image source: Nvidia.

Why SoftBank sold its Nvidia stake

SoftBank's Nvidia sale largely comes down to the company wanting to put money elsewhere, particularly as it deepens its partnership with ChatGPT's creator, OpenAI. SoftBank has committed around $30 billion to OpenAI to support its expansion and model development, so the company isn't ditching artificial intelligence (AI) or ringing the alarm; it's just putting its money in a different part of the AI pipeline.

By investing in Nvidia, SoftBank gained exposure to the infrastructure portion of the AI pipeline, including Nvidia's GPUs, networking equipment, and AI chips in data centers. With its huge commitment to OpenAI, SoftBank is gaining exposure to the software portion of the AI pipeline (applications, models, enterprise tools, etc.).

There's also the proposed Stargate Project, a joint venture between SoftBank, OpenAI, Oracle, and investment firm MGX, aiming to invest $500 billion in AI infrastructure projects over the next four years. That's not just pocket change that SoftBank has lying around; it's a commitment that requires the company to strategically reallocate its funds to help finance the ambitious (and expensive) projects.

And on a strict financial level, with Nvidia's huge run over the past five years -- up over 1,280% and making it the world's most valuable public company -- it could make sense for SoftBank to take profits and put that money into younger ventures. That's on-brand for the company.

NVDA data by YCharts

Should investors follow SoftBank's lead?

The first, and arguably most important, factor to point out is that investing should be about what fits your goals, risk tolerance, and time horizon. Although there may be some overlap, you likely don't share a lot of those same objectives and constraints with a billion-dollar corporation that regularly makes such moves.

SoftBank's sale may be large in dollar terms (around $5.8 billion), but it's a drop in the bucket for a company worth over $4.3 trillion (as of Nov. 21). So, investors shouldn't take the move as a red flag or gospel. SoftBank is an influential company, but they aren't the ultimate authority for what you should do.

If anything, now could be a good time for investors to review their Nvidia stake, if they have one. You might find that with Nvidia's valuation surge, your portfolio is too heavily concentrated in the stock (especially if you own S&P 500 shares as well), and you want to rebalance your holdings.

Or, Nvidia's recent earnings may have been encouraging -- total revenue up 62% and data center revenue up 66% -- and you believe more in the company now than before and want to increase your stake.

How I would approach Nvidia's stock

If you're interested in investing in Nvidia or adding shares, I recommend using a dollar-cost averaging strategy. When you dollar-cost average, you decide on a set amount to invest in a stock, set a specific timeframe, and commit to making those investments no matter what the stock's price is at that time.

For example, you might decide to allocate $200 monthly to Nvidia shares and divide it into $50 weekly investments, $100 biweekly investments, or the full $200 at the same time each month. The amount and frequency aren't as important as sticking to your set schedule and avoiding trying to time the market. The latter often does more harm than good.

Nvidia is still a great company with good long-term potential. Don't let short-term movements distract you from that fact.

Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, IonQ, and Nvidia. The Motley Fool has a disclosure policy.