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Nvidia (NVDA) fell over 8% on Thursday, Feb. 27, bringing its year-to-date loss to over 10%. The chip giant is now the third-worst-performing constituent of the Magnificent 7, and its YTD drawdown is similar to that of Alphabet (GOOG). Tesla (TSLA) is the worst performer among the coveted group this year, and the stock is among the top losers in the S&P 500 Index ($SPX) as well. NVDA was the best-performing Magnificent 7 stock over the past two years as it became the face of the artificial intelligence (AI) rally. The company has been powering tech companies’ AI ambitions, and it has been a major recipient of their burgeoning capex.
Why Did Nvidia Stock Drop After Fiscal Q4 Earnings?
As has been the case for the last many quarters, Nvidia reported better-than-expected revenues and profits in its fiscal Q4 2025. The guidance for the current quarter was also ahead of consensus estimates. To be sure, beating consensus estimates has been more of a norm than exception for Nvidia, and the company’s revenues trailed estimates only once in the last five years.
But markets expect a lot more than a “beat” from Nvidia, and it beat estimates by the narrowest margin in recent history. Also, its revenue guidance for the first quarter of its fiscal 2026 was below Street-high estimates, even as it surpassed consensus estimates.
Nvidia traded higher in early price action yesterday but eventually tumbled as markets “discovered” that the earnings beat wasn’t all that great. Tepid U.S. economic data and President Donald Trump’s comments on tariffs added to the weakness. The president has said that tariffs on Canada and Mexico will go ahead early next month and has announced another 10% tariff on imports from China.
Analysts Remain Bullish on NVDA
Brokerages maintained their bullish bets on Nvidia after the fiscal Q4 earnings. Nvidia is rated as a “Strong Buy” by 37 analysts, while two rate the stock as a “Moderate Buy.” Five analysts rate NVDA as a “Hold” or some equivalent. The stock’s mean target price of $177.43 is 47% higher than the Feb. 27 closing price while the Street-high target price of $220 is over 83% higher.
4 Reasons to Wait Before You Buy the Dip in NVDA Stock
Nvidia has been among the biggest wealth creators of all time, and the stock is up almost 50,000% over the last 20 years. Those are mindboggling numbers, and the stock has been compounding incredibly over the years.
However, NVDA stock is currently in a bear market, having fallen over 20% from its record highs. Despite sell-side analysts being overtly bullish on Nvidia, I would stay away from the stock for the short term and would wait for better prices to add more to my position. Here’s what makes me bearish on Nvidia shares in the short term.
- Broader Market Weakness: I expect broader markets to trade weakly in the short term amid concerns ranging from rich valuations, trade wars, high inflation, and fears over interest rates staying longer for longer. High-beta names like Nvidia risk falling more than the broader market.
- Nvidia Would Be a Loser in Trade War: Nvidia has been losing out in China due to U.S. export control measures and risks getting into Beijing’s crosshairs as the world’s second-largest economy retaliates against Trump’s tariffs.
- The AI Trade Has Withered Away: The AI trade in the U.S. markets has withered away, and the focus has shifted to China after DeepSeek said that its AI model – produced at a fraction of the cost – fared better than competing models. At least for the short-term, Nvidia – which was at the forefront of the AI rally over the last 2 years – is looking vulnerable.
- Valuations: On the face of it, Nvidia would appear undervalued as it trades at less than 27x its expected earnings this fiscal year. Its valuations would appear even more attractive since the company is expected to post a 36% earnings rise this fiscal year. However, New York University professor Ashwath Damodaran most recently valued the company at just $78. While I won’t be as bearish as the "Dean of Valuation” and expect strong buying support near $100, I find the current prices a bit elevated given all the uncertainty.
Will NVDA Stock Recover and Go Back Up?
Buying the dip has invariably worked when it comes to Nvidia stock. Also, while the AI euphoria has withered away, I still won't call it a “bust.” Comparisons with the dot-com days remain preposterous. While there are legitimate concerns over companies’ ability to get consumers to pay for their AI products and services, the technology has several other use cases in enterprise.
On the consumer side, further advancements in AI might convince consumers to pay a premium for AI-enabled products and services. And Nvidia is the best of the best when it comes to AI chips.
However, 2025 looks like the year when markets will critically examine tech companies’ AI capex and monetization strategy. Given the many moving parts and uncertainty, I find Nvidia’s near-term risk-reward balance unfavorable at these prices and would wait for a better entry point.
