There’s no doubt about that Nvidia (NASDAQ: NVDA) has been the leader of the artificial intelligence (AI) revolution so far. The stock is up nearly ten times since early 2023, shortly after ChatGPT’s launch.
It became the world’s most valuable company this year, although it has since relinquished that position Apple. Nvidia’s strength was reflected in its latest earnings report, when the company posted another set of great results. Revenue rose 94% to $35.1 billion, and adjusted net income doubled to $20 billion, or $0.81 per share.
Nvidia shares spiked after its third-quarter earnings report on Nov. 21 with a stock price of $152.89. Shortly afterwards, however, something surprising happened. Nvidia shares began falling even as the broader market continued to rise, as investors appeared to believe its valuation had once again become too high. As of December 17, less than a month later, the stock is now down 15% from that peak, after falling for four consecutive sessions in a row.
There has been no significant news to drive Nvidia’s decline and no particularly large single-day moves. Perhaps the biggest item was that China opened an anti-monopoly investigation into the company regarding its 2019 acquisition of Mellanox, which makes networking products for servers and storage devices, according to Bloomberg.
Concerns about a shift in AI spending away from Nvidia’s core, increased competition and the reality that AI has yet to break through at the consumer or end-user level have weighed on the stock.
The stock also retreated afterwards Broadcom issued strong AI guidance in its fiscal fourth-quarter earnings report last week. While Broadcom doesn’t compete directly with Nvidia, its results, which include 220% AI growth by 2024 and expectations of 65% growth in the first quarter, show that the spoils in the AI race are finally starting to spread beyond Nvidia to spread.
Investors, especially those making significant gains in Nvidia, may finally realize that it’s time to diversify into other chip stocks.
Despite the stock’s pullback after its initial earnings report, Nvidia’s prospects still look as good as they did when the company reported earnings a month ago.
It has resolved the overheating issues that had delayed the launch of the new Blackwell platform and continues to see demand that far exceeds supply for its new components. CEO Jensen Huang described demand for Hopper and the new Blackwell platform as “incredible,” and CFO Colette Kress said demand for Blackwell would exceed supply for several quarters into fiscal 2026 or next calendar year.
Meanwhile, Nvidia’s fourth-quarter guidance calls for business as usual as the company sees revenue of approximately $37.5 billion, up 70% from the year-ago quarter, showing solid sequential growth in company reflects.
Nvidia’s decline in recent weeks comes as competition continues to weaken. Intel retired CEO Pat Gelsinger earlier this month, leaving the company without a permanent CEO, a further sign of disarray at the longtime chipmaker. In the meantime, Advanced micro devices lowered expectations in its most recent earnings report.
Both companies have launched challengers to Nvidia’s data center GPUs, but they seem unlikely to make a significant dent in Nvidia’s lead, especially as Nvidia continues to innovate at a rapid pace. Not only is Blackwell already in full production, but the next platform, Rubin, is already in development.
Viewed from that perspective, the recent sell-off looks like a buying opportunity for Nvidia. The growth prospects remain as strong as a month ago. The competitive threat appears to have diminished and investors are generally optimistic about 2025, as AI is expected to expand into software and hopes are high that the Trump administration will relax regulations.
Nvidia now trades at a price-to-earnings ratio of 44, based on this year’s consensus, which seems like a great price for a company growing so quickly. Nvidia continues to strengthen its competitive advantages, and while growth should continue to moderate, its valuation leaves room for continued gains. The stock still looks like a buy, especially after the post-earnings pullback.
Consider the following before buying shares in Nvidia:
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Jeremy Bowman has positions at Broadcom. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, Intel, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
Down 15%, Is Nvidia Stock Now a Buy? was originally published by The Motley Fool
