We've gotten used to Nvidia (NASDAQ: NVDA) reaching "firsts" or records -- the company repeatedly has launched the world's fastest artificial intelligence (AI) chip yet and reported its highest quarterly revenue ever. Nvidia's standout moments have been very positive. But in recent days, the situation hasn't been as bright.
As the general market tumbled, so did Nvidia. The star AI stock has dropped 12% since the start of the month, and last week in just one day it lost $279 billion in market value. That's the biggest-ever one-day loss in market capitalization for a U.S. company. Though this has left Nvidia significantly cheaper than it was earlier this year -- trading at 36x forward earnings estimates instead of 50x -- you still may be wondering what to do about the stock right now. Has it permanently lost momentum, making it one to avoid, or is Nvidia a buy on the dip? Let's find out.
Image source: Getty Images.
Nvidia's GPUs
First, let's talk about how Nvidia became such a show-stopping stock, one that most investors have been closely watching. The company initially specialized in making its graphics processing units (GPUs) for the video game industry, but when it became clear these chips could be game-changers in other industries, Nvidia introduced a platform to make that possible.
The company released CUDA, a parallel computing platform that brought the GPU into many areas, including AI. Since, Nvidia's data center growth has taken off, resulting in record quarterly revenue that has surpassed the company's annual revenue just a few years ago. Nvidia also is highly profitable and boasts a gross margin of more than 70%. The company forecasts gross margin in the mid-70s for the full year.
Of course, Nvidia faces competition from companies such as Advanced Micro Devices and Intel , and these players are producing better and better chips -- and offer them for a lower price. Though these products clearly will gain more and more users, I don't believe this will knock Nvidia out of its top spot. And this is due to Nvidia's innovation strengths.
The Blackwell launch
The company offers the best chip around right now -- and it promises to update its chips on an annual basis. This will make it very difficult for another player to get ahead. Nvidia right now is preparing for the launch of a particularly important platform, its new Blackwell architecture and most powerful chip yet. The company plans a ramp of Blackwell in the fourth quarter and is predicting billions of dollars in revenue during that period.
Now, let's return to the idea of Nvidia's chips being more expensive than rival products. As mentioned, some customers will turn to those rivals. But Nvidia says that those using its latest GPUs will gain in efficiency and over time this will lower their total cost of ownership. So, by spending more now, customers can save over the long run. This is a point that could prompt certain customers to continue choosing Nvidia.
It's also important to keep in mind that Nvidia doesn't sell only chips, but instead offers customers an entire suite of AI products and services -- and these are all available through every public cloud. So, it's very easy for customers to find Nvidia.
Nvidia faces this challenge
The one challenge Nvidia faces in the coming months is delivering these products to customers in a timely manner. Demand for Blackwell, for example, is exceeding supply, and Nvidia predicts this will continue. Some potential customers who don't want to wait could turn to other companies for their AI projects. This could weigh on growth and eventually on stock performance. On top of this, any disappointment in Nvidia's earnings reports could hurt investor sentiment since investors have gotten used to ongoing outsized performance from this top AI company.
So, considering all of this, and Nvidia's recent lackluster stock performance, is Nvidia a buy or a stock to avoid? For investors looking for a quick gain, Nvidia may not deliver it these days. Uncertainties about the general economic backdrop are weighing on growth companies such as Nvidia -- and this could continue. Also, as mentioned, investors expect a lot of Nvidia -- and if the company doesn't immediately deliver, the stock could suffer.
But I consider these near-term problems, and they don't change Nvidia's fantastic long-term story. That's why I see Nvidia's recent dip as a not-to-be-missed opportunity to scoop up shares of this AI giant for a bargain.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $662,392 !*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of September 9, 2024
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy .
Local News
Comments / 0