Investor concerns and a lofty valuation have punished the chipmaker, but the future still looks bright.
Nvidia (NVDA -7.62%) stock started off September not with a bang but with a whimper. Late last week, the company reported the results of its fiscal 2025 second quarter (ended July 28), and while the results were better than expected, they weren’t as robust as some investors had hoped.
The stock was under pressure again on Tuesday, falling as much as 8.4%. As of 12:27 p.m. ET, the stock was still down 7.8%.
Despite some ongoing uncertainty, investors should take a step back and look at the big picture.
The forest for the trees
Some investors have become skittish about Nvidia stock in recent weeks, and it’s easy to understand why. After five consecutive quarters of triple-digit year-over-year growth, management is forecasting a moderate deceleration, guiding for revenue growth of 80% in the third quarter. Sure, that’s slower than it has been, but it’s enviable growth nonetheless.
Another issue weighing on investor sentiment is Nvidia’s waning gross margin of 75.1%. While that’s an increase compared to 70.1% in the prior-year quarter, it’s down from 78.4% in the first quarter. Some investors fear this could be the beginning of a new trend, but that conclusion is premature. Nvidia is scheduled to begin shipping its next-generation Blackwell artificial intelligence (AI) processors later this year, and previous new product launches have improved margins. This time will likely be no different.
Finally, stories emerged over the weekend of a tussle between China and Japan regarding sanctions on advanced chipmaking equipment, with the former threatening “economic retaliation,” according to a report by Bloomberg. This disagreement could potentially spill over into the broader AI sector, but it’s simply too early to tell.
Taking a step back
Thanks to soaring AI adoption, Nvidia stock has gained more than 650% since early last year (as of this writing) and has seen a commensurate jump in its valuation, currently selling for roughly 38 times forward sales. While that’s certainly a premium, Nvidia’s track record shows it’s worth paying up for.
It’s still early days for the adoption of generative AI, with the market expected to be worth $1.3 trillion by 2032, according to Bloomberg Intelligence. That shows there’s still plenty of time for Nvidia to continue tapping this emerging opportunity.
That’s why Nvidia stock is a buy.