Despite a 17% drop from its peak, Nvidia (NASDAQ:NVDA) stock remains higher than three months ago. The recent decline seems excessive, as Nvidia continues to supply chips to major mega-cap AI players and will continue to do so for a long time. The company’s upcoming Blackwell chips are expected to drive further sales. Although Nvidia may face more short-term pain, many believe this recent dip presents a strong buying opportunity.
Nvidia has addressed several AI concerns in its Q2 earnings, with CFO Colette Kress reassuring investors. Bank of America set a $1,500 price target for Nvidia due to its strong performance in high-performance computing. Indeed, I think more price target hikes are in order given the magnitude of the recent move in this AI stock.
Despite recent dips, Nvidia remains a top growth stock with potential upside if it meets future estimates. Long-term investors have benefited from Nvidia’s chip design prowess, though risks remain.
The Bull Case for Nvidia Stock
As one of the world’s largest companies with a $2.6 trillion market cap, NVDA soared 745% since 2023. The surge is due to the demand for its AI GPUs from various tech companies. Nvidia also dominates over 90% of the AI chip market, showing a strong reputation. Its recent financial performance also outshined Apple, and the company is expected to grow more up to $300 billion in ten years time.
Nvidia faces challenges due to the uncertain future of AI monetization and its high valuation amid an undiversified revenue base. However, long-term investing can yield sustainable returns, and Nvidia remains a strong bet on AI technology due to its advanced hardware and software integration. Investors buying now are wagering on Nvidia’s ability to overcome short-term obstacles as the AI industry evolves.
With Nvidia’s gaming business innovations in AI-enabled PCs adoption, this has contributed more earnings for the company. Analysts expect a 46% annual growth for earnings in the next five years, and this outpaces Apple’s (NASDAQ:AAPL) growth estimates. This dominance positions Nvidia for faster growth compared to Apple, potentially allowing it to surpass Apple’s market share, driven by its AI advancements.
The Bear Case for Nvidia Stock
Nvidia’s future appears uncertain due to an unsustainable revenue outlook and supply chain weaknesses. Recognizing this, Nvidia shifted toward monetizing services around its hardware, like AI data center software and GPU customization. This transformation into a service provider suggests selling Nvidia stock now, given its overvalued position with a price-earnings ratio of 68-times and a price-book ratio of 57-times. This is a pragmatic move, allowing investors to seek growth opportunities elsewhere as Nvidia approaches its peak.
Considering Nvidia’s elevated market valuation, and with its stock trading at 47 times forward earnings, this is a pricey combination. Although this growth is positive for investors, this could also hurt investors if Nvidia stock declines. Its valuation assumes continued growth beyond its current size. Cracks in the consumer AI sector and challenging comparisons to this year’s performance complicate this outlook.
Stay Long, But Be Cautious
Nvidia’s new Blackwell architecture, featuring B100 and B200 GPUs, promises up to 15x performance with lower power use. The B200 series may be rebranded as “B20” for China due to U.S. export restrictions.
Nvidia dominates the AI chip market, powering data centers and hyperscalers like Microsoft (NASDAQ:MSFT). Its CUDA software sets Nvidia apart, enabling efficient GPU programming and creating high switching costs for clients, ensuring long-term customer retention. This makes a strong reason to buy and hold NVDA if you have it, or buy on dips.
That said, accumulating more at the company’s current valuation is something I wouldn’t personally do but it’s up to the individual investor right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article