NEW YORK (Reuters) - The huge rally in Nvidia Corp's ( NVDA ) shares has investors weighing whether to cash in, hold on for more gains or chase a stock that has tripled during the past year.

Nvidia ( NVDA ) this week briefly became the largest U.S. company by market value on the back of a more than 1,000% surge in share price since October 2022. It is up 206% in the last 12 months.

Nvidia ( NVDA ) bulls say more gains are coming. The Santa Clara, California company stands at the forefront of a massive technological shift as the dominant provider of chips to support artificial intelligence applications. Revenues are expected to double this fiscal year to $120 billion and rise to $160 billion in the following year. Microsoft ( MSFT ), by comparison, is expected to grow revenues by about 16% for its fiscal year.

The stock's eye-popping performance is drawing in investors afraid of missing out on more gains. Yet it has also made Nvidia's ( NVDA ) shares more richly valued: its forward price-to-earnings ratio, for example, has grown by 80% this year. That could make the company's shares more vulnerable to sharp pullbacks when bad news hits.

"What it's done in the past ... shouldn't be driving the investment decision," said Chuck Carlson, chief executive officer at Horizon Investment Services. "However, on a stock like Nvidia ( NVDA ), it's awfully hard to have that not be a factor in the investment decision because you have this chasing feeling."

ONWARDS AND UPWARDS

So far, Nvidia's ( NVDA ) share price trajectory has rewarded bullish investors and punished doubters. The stock is up 164% in 2024, as its market value has surged to over $3.2 trillion, briefly putting it ahead of Microsoft ( MSFT ) and Apple ( AAPL ) this week.

Optimistic investors point to Nvidia's ( NVDA ) dominance of the AI-chip sector as a key reason for their bullishness.

The high performance of Nvidia's ( NVDA ) chips makes them difficult to replace in AI data centers. Adding to this lead is its proprietary software framework that developers use to program AI processors.

Ivana Delevska, founder and chief investment officer of Spear Invest, remains bullish on the outlook for Nvidia ( NVDA ) shares, as she expects upside to earnings beyond what Wall Street analysts are forecasting.

Nvidia ( NVDA ) is the top holding in the Spear Alpha ETF ( SPRX ), at nearly 14% of the fund.

"If the (stock) price has gone up like it has but the earnings haven't really moved, yeah, we would be very worried," Delevska said. But, "where we are here it has pretty solid earnings support."

Indeed, Nvidia's ( NVDA ) forward price-to-earnings ratio of about 45 is only modestly higher than its five-year average P/E of 41, even after growing from 25 at the start of the year, according to LSEG Datastream. At the same time, that valuation is down from more than 84 about a year ago.

Tom Plumb, president of Plumb Funds, said he believes the opportunity for Nvidia's ( NVDA ) chips beyond AI is underappreciated. The firm has held Nvidia ( NVDA ) shares for more than seven years and it is the largest position in its two funds.

"What we really are talking about is data and access to data," Plumb said. "And they have the fastest, smartest chip that allows that."

CAUTION AHEAD?

Others have grown wary about Nvidia's ( NVDA ) prospects of delivering stunning gains in the future.

Nvidia ( NVDA ) has a "truly revolutionary" product and has posted "unprecedented growth," said Gil Luria, an analyst with D.A. Davidson. However, he has a "neutral" rating on the stock and a $90 price target, compared with the stock's price of $130.78 on Thursday.

Looking ahead several years, Luria said he doubts Nvidia's ( NVDA ) customers will spend enough to drive the Wall Street earnings estimates that support the company's valuation.

"The caution on Nvidia ( NVDA ) comes from the longer-term outlook," Luria said. "This type of performance is very hard to maintain."

Billionaire investor Stanley Druckenmiller said last month that he reduced his big bet in Nvidia ( NVDA ) in 2024, telling CNBC television that "AI might be a little overhyped now, but underhyped long term."

Carlson, of Horizon Investment Services, considers Nvidia ( NVDA ) a "buy," but because of the stock's relatively expensive valuation, it would not make the cut to be included in Horizon's roughly 30-stock portfolios.

Other concerns include eventual competition that erodes Nvidia's ( NVDA ) market-leading position. Tech giants Microsoft ( MSFT ), Meta Platforms ( META ), and Google-owner Alphabet are competing to build their AI computing capabilities and add the technology to their products and services.

Analysts at Morningstar ( MORN ), which has a $105 fair value on the stock, said leading vendors such as Amazon ( AMZN ), Microsoft ( MSFT ) and Meta Platforms ( META ) will eventually seek to reduce their reliance on the company and diversify their supplier base.

"Nvidia ( NVDA ) dominates AI today and the sky is the limit for the company's profitability if it can maintain this lead over the next decade," Morningstar's ( MORN ) Brian Colello wrote this month. "However, any semblance of the successful development of alternatives could meaningfully limit Nvidia's ( NVDA ) upside."