We’ve become accustomed to Nvidia (NASDAQ: NVDA) Nvidia’s big moments have been strong — firsts, records — the company repeatedly announced the world’s fastest artificial intelligence chip to date and reported its highest quarterly revenue ever. But things haven’t been so bright in recent days.
As the broader market crashes, so does Nvidia. The flagship AI stock has fallen 12% since the start of the month and lost $279 billion in market cap in just one day last week, the largest one-day drop in a U.S. company’s market cap ever. This makes Nvidia’s stock significantly cheaper than it was earlier this year, trading at 36 times forward earnings instead of 50 times, but some may still be wondering what to do with the stock at this point. Has it lost steam for good and become a stock to avoid, or should you buy on the dip? Let’s find out.
Nvidia GPUs
First, let’s talk about how Nvidia became such a hot topic and the stock most investors are watching. The company initially specialized in making graphic processing units (GPUs) for the video gaming industry, but as it became clear that these chips could be game changers in other industries as well, Nvidia introduced the platform that would make this possible.
The company released CUDA, a parallel computing platform that introduced GPUs to many areas, including AI. Since then, Nvidia’s data center growth has skyrocketed, resulting in record quarterly revenues that exceeded the company’s annual revenues just a few years ago. Nvidia is also highly profitable, boasting gross margins of over 70%. The company expects full-year gross margins to be in the mid-70% range.
Of course, Nvidia faces competition from companies like Advanced Micro Devices and Intel, which are making increasingly better chips and offering them at lower prices. These products will obviously attract more users, but I don’t think this will knock Nvidia off the top spot, due to the strength of their innovation.
Blackwell Launches
The company currently offers the best chips and has committed to updating them every year, which will make it very difficult for others to get ahead. Nvidia is currently preparing to launch a particularly important platform, the new Blackwell architecture, and its most powerful chips ever. The company plans to ramp up Blackwell production in the fourth quarter and expects billions of dollars in revenue in that period.
Now, going back to the point that Nvidia’s chips are more expensive than rivals’ products. As mentioned above, some customers will look to rivals. But Nvidia says that its latest GPUs improve efficiency and lower the total cost of ownership over time. That means that spending more now will save customers money in the long run. This could be a catalyst for certain customers to continue choosing Nvidia.
It’s also important to remember that Nvidia doesn’t just sell chips, it offers its customers a full suite of AI products and services, all available through any public cloud, which makes it very easy for customers to discover Nvidia.
Nvidia is facing this challenge.
The only challenge Nvidia faces in the coming months is getting these products to customers in a timely manner. For example, demand for Blackwell is outstripping supply, and Nvidia expects this to continue. Some potential customers who don’t want to wait will turn to other companies for their AI projects. This could put a strain on growth and ultimately hurt the stock price. Additionally, investors have become accustomed to the continued strong performance of this top AI company, so a disappointing earnings report from Nvidia could hurt investor sentiment.
So, given all this and NVIDIA’s recent stock weakness, is NVIDIA a buy or avoid stock? For investors looking for a quick buck, NVIDIA may not be able to live up to expectations right now. The uncertainty in the overall economy is weighing on growth companies like NVIDIA and this is likely to continue. Also, as mentioned above, investors have a lot of expectations from NVIDIA and if the company doesn’t meet those expectations soon, the stock price could fall.
But I consider these short-term issues and don’t think they will change Nvidia’s excellent long-term prospects, which is why I view Nvidia’s recent stock price decline as an opportunity not to be missed to pick up shares of this AI giant at a bargain price.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends short Intel’s November 2024 $24 call options. The Motley Fool has a disclosure policy.
After Nvidia’s market cap falls by $279 billion, is this stock a buy or avoid? was originally published by The Motley Fool.
