2 Reasons To Love NVIDIA and 1 Red Flag To Watch

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Nvidia ( NASDAQ:NVDA ) stock will not be for the faint of heart dip-buyers seeking rapid recoveries. Undoubtedly, just because every past NVDA stock plunge has been met with quick rewards doesn't mean the latest sell-off will be nearly as timely.

Of course, there's a great deal of added uncertainty surrounding the name following the big news that saw the firm on the receiving end of a Department of Justice antitrust probe. Nvidia's dominance is the primary reason investors choose it over its peers. And while Nvidia's ecosystem may be tough to break out of (remember, it's not just hardware, but software that helps contribute to the firm's incredibly wide moat), I think it's quite a stretch to view Nvidia as a monopolist.

Though the DoJ investigation is sure to be a source of continued volatility, I'm not so sure NVDA stock is safe to get back into just yet. Indeed, any reaction to bad news will likely be overblown beyond proportion. Just how overblown, though, remains the multi-trillion-dollar question for Nvidia. So, unless you're fine with double-digit percentage losses mounting in just a matter of days, perhaps enjoying the slide from the sidelines is the better idea, at least until the chilling September breeze can work its way through markets.

If you're keen on Nvidia and want the very best that artificial intelligence (AI) has to offer, though, I'm not against buying the stock as it approaches $100 per share in the coming sessions and weeks. Here are two reasons to stay bullish on the name and one to give you pause. At the end of the day, investors should consider both the bull and bear arguments before they make any moves in a market rally that some big names (think Warren Buffett) have been selling into.

Key Points About This Article

• Nvidia stock took a big hit to start September 2024.
• As uncertainties grow, shares could make for a wild ride for the rest of the year.
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Nvidia's much-awaited next-generation Blackwell chips will find their way into the hands of a lucky few customers in the fourth quarter of 2024. Undoubtedly, there's still a big ramp-up needed before the masses can get their new Blackwell chips. However, we may just get a brief glimpse of what to expect from Blackwell.

If early reception is better than expected, perhaps NVDA stock could rally months before the real Blackwell sales figures work their way into the books. Demand for these chips is already expected to be high. But if the chip manages to make its predecessor look bad, perhaps Nvidia can singlehandedly drive markets higher after a rough start to September.

Getting in the sights of an antitrust regulator always adds another layer of uncertainty to a business, especially if it's worth more than $2 trillion. However, Nvidia almost seems untouchable, given its innovation pace and the sheer horsepower of its latest GPUs. However, the Nvidia ecosystem (hardware, software, and platforms), which extends well beyond GPUs, acts as the primary source of Nvidia's economic moat. Only time will tell how the recent DoJ subpoena impacts the company's moat width.

Undoubtedly, a few fines may be slapped on here or there, but in terms of the big picture, I just don't see the DoJ derailing Nvidia's rise to stardom. They can set hurdles in front of Nvidia all they like, but CEO Jensen Huang and his team can and likely will leap past them as they look to drive AI innovation forward.

If you believe in Jensen, the antitrust news may be less material than the market thinks while the news is still fresh.

Had the rest of the market not been so wobbly, I would have viewed Tuesday's near-10% single-day drop as an opportunity. With a still-extended 50.5 times trailing price-to-earnings (P/E) multiple, NVDA profit-takers may continue to overwhelm the dip-buyers going through September.

Nvidia is a king of GPUs, and recent DoJ attention speaks to the magnitude of the company's market dominance. However, as the industry consolidates and Nvidia is blocked from making (most) big-league deals, the company's dominance could be challenged.

Indeed, antitrust hurdles put ahead of Nvidia could be a huge win for rivals like Advanced Micro Devices ( NASDAQ:AMD ), which has been wheeling and dealing lately. Of course, M&A deals would have to resort to some form of synergies (think 1+1 = 3 types of scenarios) for such activity to challenge Nvidia's dominance. Though only time will tell, I do think M&A action in the AI chip scene is worth keeping tabs on if you're an NVDA shareholder.

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