Nvidia (NVDA -7.04%) stock fell again in Tuesday’s trading. The artificial intelligence (AI) frontrunner’s share price ended the daily session down 7%, according to data from S&P Global Market Intelligence.
Nvidia’s pullback in today’s trading appears to be a classic case of a “buy the rumor, sell the news” dynamic. Yesterday, CEO Jensen Huang participated in two fireside chats at the SIGGRAPH 2024 conference — and some investors had set their expectations very high. A report suggesting that Apple had used chips designed by Alphabet to train AI models was also a factor in the sell-off. Nvidia stock is now down roughly 24% from the lifetime high that it hit on June 18.
Is it time to load up on Nvidia stock?
While CEO Jensen Huang provided some interesting commentary and projections about AI assistants and other opportunities yesterday, investors were expecting more. Nvidia did announce new AI models, support services for robotics technologies, and an acceleration of its own humanoid robot development in conjunction with Huang’s events at the SIGGRAPH conference. But that still wasn’t enough to move the stock in a bullish direction.
Adding another bearish catalyst, Reuters reported today that Apple had used Alphabet’s chips to train two of its AI models. Thus far, Nvidia has had a clear edge when it comes to advanced graphics processing units (GPUs) for artificial intelligence applications — and this strength has been the driving force in the stock’s incredible rise.
If Alphabet and other big tech companies can deliver tech that rivals Nvidia’s for AI training, the semiconductor specialist could be in trouble. On the other hand, it’s not clear that the company’s dominance in the high-end GPU space is actually being threatened — and the recent pullback could present a buying opportunity for long-term investors.
NVDA PE Ratio (Forward) data by YCharts.
After recent sell-offs, Nvidia is now trading at roughly 38 times this year’s expected earnings and 21 times expected sales. The company has already been posting stellar sales growth and margins, and it looks like the excellent expansion momentum and profits are poised to continue in the near term.
With its last guidance update, Nvidia estimated that sales would increase 107% year over year to reach $28 billion in the second quarter and a 74.8% gross margin. There’s a very good chance that the AI leader will blow past its growth target when it reports earnings at the end of August, and sales growth could accelerate again soon after. The company’s next-generation Blackwell processor platform is scheduled to debut in this year’s Q4 and is poised to be another powerful performance driver.
Given the incredible expectations surrounding Nvidia, it’s not shocking that the stock has seen high levels of volatility lately. But the company’s valuation actually looks reasonable in the context of its recent momentum and near-term growth trajectory, and there’s a good chance that the chip specialist will continue to see powerful, long-term tailwinds from the rise of AI.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Nvidia. The Motley Fool has a disclosure policy.