Growth stocks have suffered huge losses in the past few months, as inflation continues to soar. After soaring over 200% in the past five years, the chipmaker Nvidia (NASDAQ: NVDA) has sunk recently, falling 50% year to date and 26% over the past year. However, I feel that this recent dip has offered a great time to buy for the long term, and it makes up part of my portfolio. At these levels, I am tempted to buy more.
Recent updates
Despite the faltering Nvidia share price, the company’s results have remained robust. For example, in the first quarter trading update, it reported record revenues of $8.29bn, up 46% year-on-year. This included record revenue from the data centre of $3.75bn, up 83% year-on-year.
On a non-GAAP basis, which excludes the termination charge resulting from the company’s failed acquisition of Arm Holdings, net income was able to soar to $3.4bn, up 49% year on year. This has enabled the group to return $2.1bn to shareholders, through share repurchases and cash dividends. On May 23, 2022, the board of directors extended the company’s share repurchase programme to a total of $15bn.
However, the group expects a revenue hit of around $500m in the second quarter of the year, resulting from the war in Ukraine and the lockdowns within China. This is also likely to see profits decline slightly. However, even with this revenue hit of $500m, the group still expects revenues of $8.1bn, which would be 25% higher than last year.
Other factors
Another worry I hold about this growth stock is its involvement in cryptocurrencies. Indeed, this year the company was fined $5.5m by the SEC for covering up how crypto had boosted its revenues and was a major source of growth. However, amid the recent decline in cryptocurrencies, Nvidia recently stated that crypto revenues are now “nominal”. This may be a factor to stunt growth.
However, there are plenty of other signs that Nvidia is set to continue its rapid growth. Firstly, in the Q1 trading update, the founder and CEO of the company, Jensen Huang, stated “we are gearing up for the largest wave of new products in our history with new GPU, CPU, DPU and robotics processors ramping in the second half”. He also pointed to its use within AI, self-driving cars, and robotics.
According to research firm McKinsey, the global market for semiconductors could grow from $400bn to $1trn by 2030, thanks to factors such as the Metaverse. Therefore, Nvidia shares could be a great way for me to profit from this trend.
What am I doing with this growth stock?
I recently bought some Nvidia shares, as I believe it may have hit its bottom. For one, the company is currently trading at a price-to-earnings ratio of just over 30, far lower than previous P/E ratios of around 80 during the pandemic. At the same time, the company is reporting gross margins of around 67%, far higher than most other growth stocks. This highlights Nvidia’s excellent quality and is a reason I believe it will be able to overcome macroeconomic uncertainties. Therefore, I will continue to buy Nvidia shares at this price, as I believe they could have hit their bottom.
This post was originally published on Motley Fool
