Over the long run, Nvidia (NASDAQ: NVDA) has been incredibly rewarding for some investors. Nvidia stock has grown by 1,739% over the past five years alone.
Lately, though, the share price has gone into reverse. It has already fallen 26% since January.
With Wall Street looking increasingly nervous, it would not surprise me if we see further falls.
So, could this be a buying opportunity for my portfolio?
The fall is understandable
On one hand, I think there are some good reasons behind the tumbling Nvidia stock price.
The microchip sector has experienced dizzying growth in recent years, thanks to huge AI-driven demand. But question marks about the durability of this demand have also been present.
Added to that are recent concerns that AI programs may require far less chip capacity than previously expected (fuelled by the launch of DeepSeek), growing trade conflicts that threaten to add costs to supply chains, and increasing concern about the global economy generally. If the economy weakens, businesses often cut back on spending – and that could hurt the chip market.
Added to that, Nvidia stock’s valuation previously looked high, so I do not think a fall is such a surprise. Even now, the firm still commands a market capitalisation of $2.7trn.
But has the price tumble been overdone?
Looking through the other side of the lens, though, the share price fall may not make as much sense as it first seems to.
Nvidia announced a blistering set of results for 2024. Revenue grew 114%, while net income soared 145%. Those sorts of growth numbers are hard to achieve even in a modestly sized business, but for one that already has huge turnover they are exceptional.
The company continues to sound bullish and has not sounded any alarm bells about a slowing in customer demand, or negative impacts from wider economic uncertainty.
Its most recent quarter showed weaker year-on-year revenue growth than in the full 12-month period, which may suggest a potential slowdown in demand. But sales still grew by 78%, which is no small feat.
Meanwhile, Nvidia continues to benefit from a number of competitive advantages, from deep customer relationships with a large number of installed users, to proprietary technology that means many of its chips cannot be directly compared to those offered by rivals.
This share price is getting tastier
But while I see reasons for continued optimism, that recent share price fall suggests that the wider market is feeling far less upbeat about Nvidia stock than it was just a couple of months ago.
That fall means the share now trades on a price-to-earnings ratio of 37. That is a much more attractive valuation than we saw at the start of the year.
Still, does it represent good value? After all, the risks here remain substantial.
For me, the price does not yet offer sufficient margin of safety to compensate for those risks, so I am not yet ready to buy.
But Nvidia stock is getting closer to what I see as an attractive price. I will be keeping a close eye on it so that, if the price is right, I am ready to buy.
This post was originally published on Motley Fool
