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Despite falling 17% from its peak, Nvidia (NASDAQ:NVDA) shares are higher than they were three months ago. The recent decline seems excessive, given that Nvidia continues to supply chips to major mega-cap AI companies and plans to continue doing so for a long time to come. The company’s upcoming Blackwell chips are expected to lead to further sales growth. While Nvidia may face further pain in the short term, many seem to see this recent decline as a strong buying opportunity.
Nvidia addressed some of the concerns about AI in its second-quarter results, with CFO Colette Kress reassuring investors. Bank of America set a $1,500 price target on Nvidia, citing the company’s strong performance in high-performance computing. Indeed, given the magnitude of this AI stock’s recent moves, a further price target increase seems justified.
Despite the recent sell-off, NVIDIA remains a top growth stock with upside potential if future expectations are met. While risks remain, long-term investors stand to benefit from NVIDIA’s chip design prowess.
Nvidia Stock Bull Market
NVDA, one of the world’s largest companies with a market capitalization of $2.6 trillion, has surged 745% since 2023. This surge is due to the demand for AI GPUs from various technology companies. Nvidia dominates over 90% of the AI chip market and enjoys a high valuation. Its recent financial performance has also outperformed Apple, and the company is expected to grow to $300 billion in 10 years.
Nvidia faces challenges due to an uncertain future for AI monetization and a high valuation amid an undiversified revenue base. But long-term investments can produce sustainable gains, and Nvidia’s advanced hardware and software integration makes it a compelling bet in AI technology. Investors buying now are betting on Nvidia’s ability to overcome short-term obstacles as the AI industry evolves.
NVIDIA’s gaming innovations in the adoption of AI-powered PCs have boosted the company’s revenue. Analysts expect 46% annual revenue growth over the next five years, faster than Apple (NASDAQ:AAPLThis advantage will allow NVIDIA to grow faster compared to Apple, and may even surpass Apple’s market share due to advances in AI.
Nvidia Stock Bear Market
With an unsustainable revenue outlook and a weak supply chain, Nvidia’s future looks uncertain. Recognizing this, Nvidia has shifted to monetizing hardware-related services, such as AI datacenter software and GPU customization. This transformation into a services provider suggests selling Nvidia shares now, given its overvalued position at 68x earnings and 57x book value. This is a pragmatic move, allowing investors to look for growth opportunities elsewhere as Nvidia nears its peak.
That’s an expensive combination, given Nvidia’s rising market valuation and the company’s stock trading at 47 times forward earnings. This growth is good for investors, but it could hurt them if Nvidia’s stock price falls. The company’s valuation assumes it will continue to grow beyond its current size. The fissures in the consumer AI sector and the difficulty of comparing it to this year’s performance complicate this outlook.
Stay longer but be careful
Nvidia’s new Blackwell architecture with its B100 and B200 GPUs delivers up to 15x performance while consuming less power. Due to US export restrictions, the B200 series may be rebranded as “B20” for China.
Nvidia dominates the AI chip market, while Microsoft (NASDAQ:MSFTThe company’s CUDA software sets Nvidia apart by enabling efficient GPU programming, resulting in high switching costs for clients and ensuring long-term customer retention. This is a strong reason to buy and hold if you have NVDA, or buy it on the cheap.
That said, I personally wouldn’t buy more at the current company valuation, but that’s up to each individual investor at this point.
As of the date of publication, Chris McDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author in accordance with InvestorPlace.com’s publishing guidelines.
On the date of publication, the editor in charge did not have (either directly or indirectly) any positions in the securities mentioned in the article.
