The integration of artificial intelligence (AI) continues to progress, although some investors are concerned that the trend may be becoming outdated. Worries surrounding the economy and the decline in AI stock performance have contributed to this sentiment. The Nasdaq Composite Index Earlier this month, the market entered correction territory, and due to overvalued prices, some experts predict that there may be additional drops in the future.
Nvidia ( NVDA -0.21% ) has been widely recognized as the prime example for the generative AI As the company prepares to announce its results in the upcoming weeks, it is fair to say that Wall Street will be eagerly anticipating to learn more about the level of AI implementation.
Nvidia has experienced a significant increase in sales since the beginning of 2023, causing the stock to rise by 619% (as of now), but it is currently trading more than 22% below its peak.
Investors are eager to know if the recent drop in Nvidia’s stock price is a chance to buy before the company’s important financial report, which carries significant weight. Let’s assess the information at hand.
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There is strong anecdotal evidence.
Nvidia has seen significant growth in the last year and a half due to the quick acceptance of generative AI technology by cloud infrastructure companies that are well-equipped to profit from AI applications. processing units specifically designed for handling graphics tasks are considered the best option for these uses.
Consequently, cloud service providers, such as Amazon Web Services, Microsoft Azure, and Alphabet Google Cloud has been enhancing their data centers to offer the necessary computing power for running artificial intelligence. Meta Platforms has joined the trend by developing a top-tier large language model (LLM) in order to capitalize on artificial intelligence.
Cloud industry leaders continue to show strong interest in Nvidia’s AI-focused processors, with each of them emphasizing their intentions to utilize them. increased investment in capital expenditures This is promising for Nvidia in the upcoming quarter as they continue to back their AI goals.
Competitors and collaborators are stating strong sales figures.
There is additional evidence indicating that Nvidia’s results are expected to be strong.
AMD ( AMD -1.50% ) Advanced Micro Devices, also called AMD, is a major competitor of Nvidia in the graphics processing unit (GPU) industry. The company disclosed its… results for the second quarter Toward the end of the previous month, there was a surprising increase in sales related to artificial intelligence at the company. Despite a 9% growth in overall revenue that surpassed predictions, the sales specifically from data centers reached an all-time high of $2.58 billion, showing a remarkable 115% increase compared to the previous year, primarily due to the high demand for AI technology.
Arm Holdings ( ARM -1.21% ) Nvidia’s AI processors contain CPU cores developed by Arm, which reported positive financial results for its fiscal 2025 first quarter ending on June 30th. Arm achieved its fourth consecutive quarter of record performance, with a record revenue of $939 million, marking a 39% increase compared to the previous year. The growth was driven by record license revenue, attributed to the widespread adoption of AI technology.
Super Micro Computer can be restated as “Highly Efficient Computer System”. ( SMCI -0.23% ) The company offers server and storage solutions that include advanced AI processors from Nvidia and other manufacturers. In the fiscal fourth quarter of 2024 (ending on June 30), the company recorded a revenue of $5.3 billion, marking a significant 143% increase compared to the previous year and a 38% increase from the previous quarter. Despite experiencing rapid growth, management highlighted that Supermicro faced challenges due to temporary “supply chain bottlenecks.”
The common factor among these AI players is that there was a consistent high demand in the last quarter, largely influenced by the ongoing trend of AI. This indicates that Nvidia’s sales are likely to be strong as well.
Stock splits are seen as positive or optimistic.
There are other factors that suggest Nvidia stock may have more room to increase in value. Studies conducted by analysts at Bank of America can be rewritten as America’s Bank. Research demonstrates that stocks that have undergone a stock-split announcement experienced an average increase of 25% in the year following the announcement, whereas non-stock-split stocks only saw an average increase of 12%. S&P 500 .
Since Nvidia announced a division of its stock The stock experienced gains on May 22. fallen At the time of writing, the stock price has decreased by 19% due to concerns about the economy, which have outweighed the positive impact of AI. Looking at past patterns, Nvidia still has a lot of room for significant growth in its stock price.
Should we consider purchasing the stock before August 28?
For those seeking quick profits, Nvidia may not be the ideal investment option. The stock has displayed high volatility in recent times, and this trend is expected to persist. While individuals who invested in Nvidia last year may have seen substantial gains, those who purchased the stock just a month ago could be experiencing a decline of over 22%. This highlights the importance of a fundamental investing principle: It is advisable to invest in top-tier companies and maintain a long-term perspective by holding onto the shares for three to five years to mitigate the effects of short-term market fluctuations.
If you’re curious about the direction of Nvidia’s stock following its upcoming financial report, it’s anyone’s guess. I haven’t had my crystal ball for years, and it’s yet to be returned from the repair shop. Moreover, anyone claiming to predict the future in the coming days or weeks is not being entirely honest.
I would venture to say, albeit uncertainly, that Nvidia is likely to announce a new all-time high in sales for the quarter. Analysts predict revenue of $28.52 billion, slightly surpassing Nvidia’s projected $28 billion. The response of the stock price following the report will largely hinge on the company’s profits and its outlook for the future.
Taking a moment to consider the overall situation is crucial. Nvidia’s GPUs are highly regarded for their AI capabilities, and although competition is possible, no clear successor has been identified. Many professionals believe we are still in the early stages of generative AI development as its usage grows. Even the most cautious predictions indicate that the generative AI market has the potential to reach trillions of dollars, with some projections even higher.
As of now, the price of Nvidia stock is trading at a 38 times earnings premium. However, the company’s significant growth, top position in the industry, and extensive history indicate that it is justifiably valued.
I recommend that if you share my belief that AI technology still has a lot of progress to make and that Nvidia will continue to lead the market, then you should consider investing in Nvidia stock and holding onto it for the long term.
