Undergoing a 15% decrease, is it worth purchasing Nvidia's stocks presently?
Without a doubt, NVIDIA (NVDA 0.35%) has been the front-runner in the artificial intelligence (AI) field to this point. The stock skyrocketed nearly 10-fold since the commencement of 2023, shortly following the arrival of ChatGPT's launch.
It ascended to becoming the world's most valuable company this year, although it subsequently surrendered that position to Apple. NVIDIA's dominance was evident in its latest financial report, as the company reported robust results yet again. Revenue escalated by 94% to $35.1 billion, and adjusted net income doubled to $20 billion, or $0.81 per share.
NVIDIA's shares reached their highest point following the third-quarter earnings report on Nov. 21, at a share price of $152.89. However, an intriguing turn of events unfolded shortly after that. NVIDIA's shares started to decline even as the overall market continued to thrive, with investors apparently believing that the valuation had once more become unwarranted. As of Dec. 17, less than a month later, the stock has plummeted by 15% from that peak after experiencing a decline for four consecutive days.
What accounts for NVIDIA's downturn?
No major news events have prompted NVIDIA's decline, and there haven't been any substantial one-day price swings. The most notable occurrence was that China opened an anti-monopoly investigation into the company, according to Bloomberg, pertaining to its 2019 acquisition of Mellanox, which manufactures networking solutions for servers and storage equipment.
Worries about a shift in AI expenditures away from NVIDIA's core domain, heightened competition, and the realization that AI has not yet penetrated the consumer or end-user market have impacted the stock.
The stock also experienced a setback following Broadcom's strong AI guidance in its fourth-quarter earnings report last week. Although Broadcom does not compete directly with NVIDIA, its results, which showed a 220% AI growth rate in 2024 and projected a 65% growth rate in the first quarter, suggest that the spoils in the AI competition might eventually begin to be shared beyond NVIDIA.
Investors, particularly those who have been amassing considerable gains in NVIDIA, may now be contemplating diversification into other chip stocks.
NVIDIA's present worth proposition
Despite the stock's decline following the initial earnings surge, NVIDIA's prospects remain just as strong as they did when the company reported earnings a month earlier.
It has successfully addressed the overheating issues that had delayed the debut of the Blackwell platform and continues to experience demand that significantly outpaces the supply of its latest components. CEO Jensen Huang described the demand for Hopper and the new Blackwell platform as "phenomenal," while CFO Colette Kress stated that Blackwell demand would surpass supply for several quarters into fiscal 2026, or the next calendar year.
Meanwhile, NVIDIA's fourth-quarter estimates call for business as usual, as the company anticipates revenue of around $37.5 billion, an increase of 70% from the previous quarter, indicating solid sequential growth in the business.
Is NVIDIA a good investment?
NVIDIA's decline in recent weeks coincides with the weakening of its competition. Intel pushed CEO Pat Gelsinger into retirement earlier this month, leaving the company without a permanent CEO, a further sign of disarray at the legacy chipmaker. Meanwhile, Advanced Micro Devices (AMD) lowered its guidance in its most recent earnings report.
Both of those companies have released challengers to NVIDIA's data center GPUs, but they seem unlikely to pose a significant threat to NVIDIA's lead, especially as NVIDIA continues to innovate rapidly. Not only is Blackwell already in full production, but its next platform, Rubin, is already under development.
Considering this perspective, the recent sell-off appears to be a buying opportunity for NVIDIA. Its growth prospects remain as robust as they were a month ago. The competitive threat appears to have waned, and investors remain optimistic about 2025, as AI is expected to broaden into software and there is hope that regulations will be reduced under the Trump administration.
NVIDIA now trades at a forward price-to-earnings ratio of 44 based on this year's consensus, which appears to be a reasonable price for a company growing as rapidly as it is. NVIDIA continues to strengthen its competitive advantages, and while its growth is expected to gradually decelerate, its valuation leaves room for continued gains. The stock remains a good investment, particularly following the post-earnings decline.
Despite NVIDIA's recent stock decline, its financial report showcased robust results, with a 94% revenue increase and doubled net income. This has led some investors to consider diversifying into other chip stocks. However, NVIDIA's dominant position in the AI field, as evidenced by its robust revenue growth and upcoming platform launches, makes it an attractive investment opportunity for those looking to invest in finance and technology, especially in the field of investing in AI and technology companies.
