We recently published a list of Jim Cramer is Talking About 10 Falling Stocks Amid Latest Market Rotation. Since NVIDIA Corp (NASDAQ:NVDA) ranks 4th on the list, it deserves a deeper look.

Jim Cramer in a program last week tried to make sense of the decline in tech stocks, saying companies with the “best fundamentals” got “hammered once again.”

“I did not expect that to happen.”

Cramer said that sometimes it’s difficult to own the “winners.” The CNBC host said it’s important to understand the bear cases around stocks otherwise you will never know what “you are up against.”

Jim Cramer tried to find out whether the latest decline in top tech stocks was just a “periodic selloff” that presented an “opportunity.”

“When we get this kind of rotation, you never know whether these stocks are selling off because there’s something wrong or because they are up huge.”

Jim Cramer pointed to a caveat when it comes to holding winning stocks. When you have the losers, there are no profits, but when you own winners in your portfolio, you can see losses because people want to take some profits off the table, Cramer said.

The CNBC host said when top stocks go down, people holding those in their portfolios often end up thinking about whether they should also sell these stocks and if something has “changed.”

“From what I can tell you, nothing has changed about the stocks we are going talk about tonight. But it is true that the stocks are a heck of a lot more expensive than they were one year ago.”

In this program, we took a look at some top tech stocks that fell last week and explained the reasons they lost value according to Jim Cramer. We also discussed these companies’ fundamentals and hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

NVIDIA Corp (NASDAQ:NVDA)

Number of Hedge Fund Investors: 186

Cramer said in a latest program mentioned a new research paper by Hendrik Bessembinder from Arizona State University. Here is what the paper said:

 “The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, earned by NVIDIA Corp (NASDAQ:NVDA) shareholders,” the paper said.

Cramer said that he thought this was an “amazing number” until his colleague David Faber reminded him that this is “what-have-you-done-for-me-lately business, so it does not matter.”

“This kind of selloff, that’s the prevailing attitude. That’s why everyone wants out,” Cramer said.

NVIDIA Corp (NASDAQ:NVDA) rapid run and soaring valuation have started to make some circles on Wall Street uneasy. New Street Research recently downgraded the stock to Neutral from Buy and set the stock’s price target at $135.

“We downgrade the stock to Neutral today, as upside will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet.” New Street analyst Pierre Ferragu said.

NYU professor and valuation guru Aswath Damodoran has also been skeptical about NVDA over the past several months, saying repeatedly that the stock looks overvalued. In March, when he was asked about his previous predictions (that proved wrong) about NVDA valuation, the professor said that either he has “no idea what I’m talking about” or it’s the market that just does not understand.

Aswath Damodoran at the time said that while Nvidia was in the “driving seat” of the AI bandwagon, its path to profits won’t be as easy as the market assumes.

Recently, Oppenheimer’s Rick Schafer joined the NVIDIA Corp (NASDAQ:NVDA) chorus, raising the chipmaker’s price target to $150 from $110 following the 10-1 stock split.

NVIDIA Corp (NASDAQ:NVDA) is one of the stocks accounting for a huge chunk of the total market returns, thanks to its AI-fueled rally that seems to have no end in sight. NVIDIA Corp (NASDAQ:NVDA) shares have gained about 174% over the past year.

Polen Focus Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:

“In the second quarter, the dominant narrative in markets continued to be generative AI (GenAI). If it wasn’t immediately evident from NVIDIA Corporation’s (NASDAQ:NVDA) meteoric rise to among the largest companies in the world, one need only look so far as the Semiconductor and Technology Hardware industries as a gauge of sentiment, collectively accounting for greater than 70% of the Russell 1000 Growth (“the Index”) and 85% of the S&P 500 headline return quarter to date.

Our Portfolio has no exposure to NVIDIA or other Semiconductor companies currently benefiting from demand for foundational AI Hardware. The largest relative detractors in the quarter were NVIDIA, Apple, and Salesforce.

For the second quarter in a row, NVIDIA represented the top detractor to relative performance as the stock climbed another 37%, bringing the year-to-date return to +150%. As of this writing, NVIDIA is the third largest company in the world, but for a brief moment, it surpassed Microsoft to become the largest company in the world. Yet again, the company delivered blowout results that surpassed already lofty expectations, reinforcing the narrative that NVIDIA is the only obvious “AI winner” due to the amount of revenue it is currently generating.

Overall, NVIDIA Corp (NASDAQ:NVDA) ranks 4th on Insider Monkey’s list titled 10 Best AI Stocks to Buy Based on New AI ETF. While we acknowledge the potential of NVIDIA Corp (NASDAQ:NVDA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.