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Tech stocks, which led the rally in U.S. markets since the beginning of 2023, are looking vulnerable now, especially after earnings for the June quarter were a dampener overall. Nvidia (NVDA), which has yet to release its quarterly earnings, has lost a quarter of its market cap from the 52-week highs, and is in a bear market. It is still the second-best performing S&P 500 Index ($SPX) component of 2024, though - trailing behind who else but fellow artificial intelligence (AI) play Super Micro Computer (SMCI).
Despite the recent crash, Nvidia stock has more than doubled in 2024. The company has been a stellar wealth creator for patient investors, and has generated some mind-boggling returns. Specifically, the stock has risen 99,999% over the last 20 years, even as Intel (INTC) – which was once the pre-eminent chip company – is in the red over the same period.
In light of the strong returns that Nvidia has been consistently generating for investors, does it make sense to buy the dip - or should you wait for even more attractive entry levels? We’ll discuss in this article, beginning with a look at why the stock has fallen so sharply.
Why Did Nvidia Stock Sell Off?
As I discussed in a previous article, Nvidia stock may have gotten ahead of itself. While the tech sell-off began only recently, Nvidia stock has looked weak since mid-June. Several factors are making investors wary of the chip-designing giant. These include:
- Expected competition in the AI chip space;
- Greater export control restrictions on China amid the ever-worsening U.S.-China AI rivalry;
- Sustainability of AI capex of chip giants;
- Delays in the new AI chip launch;
- An antitrust probe into sales practices for AI chips;
- Last, but definitely not least, high valuations.
If you already read “AI” quite a lot in the above points, it is not without a reason. The parabolic rise that Nvidia witnessed since May 2023 has been largely driven by optimism over its AI chips, which the world simply can't seem to get enough of.
Nvidia Stock: The Good, the Bad, and the Ugly
To be sure, the concerns over Nvidia are valid, even as there could be a difference in opinion over their impact on the stock.
Nvidia has had a home run with its AI chips, which have become the industry standard. However, AI startups, other chip companies, and Big Tech companies are working on their own chips. So far, none has been able to dent Nvidia’s dominant market share in the AI chip market. Regulators, however, have taken note, and the Department of Justice has launched an investigation into allegations of Nvidia abusing its market position in the AI chip market.
Reportedly, Nvidia’s Blackwell chips could be delayed due to design flaws. Previously, during Nvidia’s fiscal Q1 2025 earnings call in May, CEO Jensen Huang said, “We will see a lot of Blackwell revenue this year.”
The risks of further curbs on Nvidia’s sales to China are also real – especially if Donald Trump is voted to power. Tech names like Nvidia and Apple (AAPL) that have significant exposure to China crashed in the back half of 2018 when Trump upped the ante against China in his first administration.
However, Nvidia’s valuations now look much more grounded, and it trades at a next 12-month (NTM) price-to-earnings (PE) multiple of around 34x, which is significantly below the over 45x it peaked at in June.
Separately, I believe concerns over tech companies scaling back their AI investments (and thereby curtailing the demand for Nvidia’s chips) are overblown – at least in the short term. The recently concluded earnings calls of so-called hyperscalers show that they are not backing off from AI investments, which would keep Nvidia’s cash registers ringing for the next few quarters.
NVDA Stock Forecast
Wall Street analysts are quite upbeat on Nvidia stock, and it has a consensus rating of “Strong Buy.” The stock carries a mean target price of $141.29, which is 35% higher than Tuesday’s closing prices.
Analysts have been raising their target prices on Nvidia after every earnings release since its Q1 2024 confessional in May last year, and there is no reason to believe they won’t do so later this month when the company releases its fiscal Q2 earnings.
Should You Buy the Dip in Nvidia Stock?
I believe it would make sense to gradually buy Nvidia stock in August. Volatility in tech stocks looks to be here to stay, after a picture-perfect first half where they delivered strong returns with low volatility. In the second half, we seem to be headed for a period of low-to-modest returns with higher volatility.
All of that said, given tech companies’ unending appetite for Nvidia’s AI chips and the reasonable valuations after the recent crash, I am turning incrementally bullish on NVDA stock.
On the date of publication, Mohit Oberoi had a position in: NVDA , INTC , AAPL . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
