There’s no question it’s Nvidia (NVDA 3.08%) It has been a leader in the artificial intelligence (AI) revolution. Since early 2023, shortly after ChatGPT launched, its stock price has soared nearly 10 times.
The company emerged as the world’s most valuable company this year, but has since lost that title to Apple. NVIDIA’s strength was evident in its latest earnings report as the company once again delivered impressive results. Sales rose 94% to $35.1 billion, and adjusted net income doubled to $20 billion, or $0.81 per share.
Nvidia stock hit an all-time high of $152.89 after the company released its third quarter results on November 21st. But something amazing happened soon after. Even as the overall market continues to rise, NVIDIA’s stock price has begun to decline as investors appear to believe that its valuation is once again overinflated. As of Dec. 17, less than a month ago, the stock is down 15% from its peak after falling for four consecutive sessions.
Image source: Nvidia.
What’s behind Nvidia’s slowdown?
There was no major news that caused Nvidia’s decline, and there were no significant movements during the day. Perhaps the biggest thing, according to Bloomberg, is that China has launched an antitrust investigation into Mellanox, a maker of networking products for servers and storage equipment, over its 2019 acquisition of the company.
Concerns about AI spending moving away from Nvidia’s core, increased competition, and the reality that AI is not yet widespread at the consumer or end-user level are weighing on the stock.
Broadcom’s strong guidance on AI in its fourth-quarter earnings report last week also pushed the stock lower. Although Broadcom does not directly compete with Nvidia, its results, including forecasts for 220% AI growth in 2024 and 65% growth in the first quarter, could mean that the spoils of the AI race will finally spread beyond Nvidia. This indicates that it may be starting.
Investors, especially those who have made big profits in Nvidia, may finally feel it’s time to diversify into other chip stocks.
Nvidia’s current value proposition
Despite the stock’s pullback after its first earnings release, NVIDIA’s outlook still looks as strong as it did when the company announced its results a month ago.
The overheating issue that delayed the launch of the new Blackwell platform has been resolved, and demand continues to significantly outstrip supply of new components. CEO Jensen Hwang said demand for Hopper and Blackwell’s new platform was “incredible,” and CFO Colette Kress said Blackwell’s demand for the new platform was expected to grow in fiscal 2026. This means that supply will be exceeded for several quarters into next calendar year, he said.
Meanwhile, NVIDIA’s fourth quarter guidance calls for revenue to increase 70% year-over-year to approximately $37.5 billion, reflecting the continued strong growth of the business, with business as usual expected. It’s wanted.
Is Nvidia a buy?
Nvidia’s pullback in recent weeks comes as the company’s competitive position continues to decline. Intel forced CEO Pat Gelsinger to step down earlier this month, leaving the company without a permanent CEO and further signs of turmoil at the traditional chipmaker. Meanwhile, Advanced Micro Devices lowered its outlook in its latest earnings report.
Both of these companies are launching companies to challenge Nvidia’s data center GPUs, but are unlikely to significantly impact Nvidia’s lead, especially as Nvidia continues to innovate at a rapid pace. It seems so. Not only is Blackwell already in full production, but our next platform, Rubin, is already in development.
From that perspective, the recent decline looks like a buying opportunity for Nvidia. Its growth outlook remains as strong as it was a month ago. Investors are generally bullish about 2025 as competitive threats appear to have subsided, AI is expected to expand into the software sector, and expectations are rising that the Trump administration will loosen regulations.
Based on this year’s consensus, NVIDIA currently trades at 44 times forward earnings, a very high price for a company that is growing this fast. As Nvidia continues to strengthen its competitive advantage, its growth should continue to be moderate, but its valuation still has room for continued upside. The stock looks like there is still room for buying, especially after the post-earnings pullback.
Jeremy Bowman has a position at Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: February 2025 $27 short calls on Intel. The Motley Fool has a disclosure policy.
