Even the biggest winners of Nvidia's stock spike are cutting back as AI hype goes into overdrive

• Nvidia is up 172% this year, and high-profile investors have been cashing in their gains.
• They're all singing the same refrain: they like the stock, but it's gone up too much, too quickly.
• Their position-trimming is indicative of the broader risk around a "baby bubble" seen forming in AI.

Even Nvidia's staunchest bulls surely couldn't have predicted its surge into the $1 trillion market cap stratosphere. The stock is up an eye-watering 172% this year, having spiked 30% in just the last week or so.

It's been the clear winner of the AI boom so far, one that's also seen shares of Meta more than double as Microsoft and Alphabet have climbed roughly 40% apiece. Investors have taken note and are trying to ride the wave higher, pouring a record $8.5 billion into AI tech funds last week alone.

But how much is too much? Based on a couple of recent developments in the Nvidia investor community, owners of the stock seem to think it's time to pump the brakes and trim holdings.

Edmond de Rothschild Asset Management is one recent high-profile example. In an interview with Bloomberg, the firm's global CIO Benjamin Melman said their overweight position on Nvidia is now "far smaller" than it was before the stock's latest sharp leg higher. In other words, the firm decided to take some profits.

The trimmed position is especially notable because Edmond de Rothschild — which has $87 billion under management — has been a long-time Nvidia bull. The firm has been overweight the stock since at least late 2020, according to Bloomberg.

"Would we add to AI tech? We're less and less sure on that as valuations are too lofty," Melman said in the Bloomberg interview. "If the gains continue, we'll be even more cautious."

Aswath Damodaran — the renowned NYU finance professor, and until recently a Nvidia shareholder — made a similar move for a similar reason. An avowed value investor, Damodaran said the stock is simply too fully priced to fit his long-term strategy of seeking bargains, so he sold his stake.

"The run-up has been just so astonishing that I cannot in good conscience hold on to it and call myself a value investor," the Stern School of Business professor told the network.

While it's not surprising that investors would want to cash in the gains surrounding a prescient stock pick, the common refrain that Nvidia has gotten overextended is cause for concern.

It matches recent commentary from Bank of America, which has called the rally in AI stocks a "baby bubble." The firm thinks that while AI may ultimately end up being hugely powerful in the long term, asset prices could still deflate significantly from current levels.

The situation is a good reminder that even the strongest and best-performing companies face overvaluation risk as well as subsequent stock sell-offs when investors decide to cash in their chips. Now it's up to Nvidia and its AI counterparts to convince the market otherwise.