Investors are hoping for a decrease in the market to make an investment. Nvidia ( NVDA -0.21% ) Investors might see this as the right time to invest as the stock has decreased in price after reaching a high of over $140 per share in June. It’s important to note that the stock has experienced significant drops in value twice since 2018.
However, the stock related to artificial intelligence (AI) The stock of Nvidia has surged by almost 2,400% in the past five years, largely driven by its dominant position in the AI chip industry. However, with a recent decline in technology stocks, investors may be wondering whether it is a good time to buy Nvidia shares or wait for a potential price drop.
The situation of Nvidia
Originally established as a gaming company, Nvidia has expanded its presence into various sectors including automotive and professional visualization. In recent times, the company’s stock has surged significantly due to its efforts to establish itself as a leading player in the AI chip industry.
Although AMD , Qualcomm While competing products have been introduced by companies like AMD, Nvidia remains the top player in the market, holding a market share of at least 80%. Additionally, the price of $30,000 or higher for Nvidia’s AI chips is significantly higher than what its competitors can ask for in this market.
However, the stock has experienced a decline in value in the past few weeks. In addition to a widespread decrease in the technology industry, Nvidia is facing scrutiny from the Department of Justice through various investigations related to its control over the AI chip market, as reported by The Information.
The publication also mentioned that the launch of the upcoming Blackwell AI chip will be postponed due to design issues. This delay could potentially affect the tech industry, particularly cloud providers like. Amazon , Alphabet , and Microsoft Investors can rely on this technology to provide them with some of the productivity benefits.
The impact it has on Nvidia
It is true that its financials may not be significantly affected. The AI chip market is projected to expand at a compound annual growth rate of 38% until 2032, and Nvidia and similar companies have faced challenges in meeting the increasing demand.
During the initial three months of fiscal year 2025, Nvidia experienced a significant revenue increase of 262%, reaching $26 billion. Although the company’s performance in the second quarter of the fiscal year will be disclosed during the earnings release on August 28, it anticipates a quarterly revenue of $28 billion at the midpoint, representing a projected yearly growth of 107%.
Nvidia faces challenges as its stock is considered to be valued too optimistically, and the legal issues and delays in development suggest that it does not meet such high expectations. Despite its fast expansion, the company is struggling in meeting market expectations. The ratio of a company’s stock price to its earnings is referred to as the price-to-earnings (P/E) ratio. A justification for the 59 could be considered valid.
On the other hand, alternative methods of valuation indicate that the stock is overpriced. The ratio of price to sales surpasses AMD’s sales ratio of slightly more than 9. Additionally, its 50 price-to- book value The ratio is significantly higher than AMD’s book value multiple of 4. While Nvidia’s technological advantage justifies a higher price, these levels appear too high given the difficulties Nvidia is facing.
Is it advisable for investors to purchase Nvidia stock?
When considering purchasing Nvidia, one option could be to buy at the current price and wait for a potential decrease in price. Here is the rationale behind this approach.
Nvidia’s strong position in the AI chip industry is expected to lead to a significant increase in revenue and profits, despite the Blackwell chips facing a delay in their launch. Therefore, the company is likely to maintain its success in the long term, regardless of the cost.
However, investors should utilize Dollar-cost averaging (DCA) Opting to invest gradually rather than making a one-time purchase may be wise. Given the current obstacles faced by Nvidia and the high valuation ratios, there is a high likelihood of a further decline in the near future.
Furthermore, it has been noted that Nvidia’s stock has experienced a decrease of over 50% on two occasions since 2018. Therefore, investors should be prepared for the possibility of another similar decline in the future. Dollar-cost averaging (DCA) investing can be a strategy that allows investors to hold Nvidia stock while also taking advantage of lower prices when they arise.
