The Nvidia (NASDAQ:NVDA) share price fell 9.5% on Tuesday (3 September) as US stocks sold off across the board. As a result, itâs ‘only’ up 124% since the start of the year.
By any reasonable standards, thatâs a lot. But with the company growing revenues at 122% per year and its earnings per share at 154%, could the latest dip be a buying opportunity?
Why is the stock falling?
The obvious first question for investors to ask themselves is whether Nvidia is 9.5% worse as a business than it was before the decline. I donât think it is.
Weak economic data caused US shares to fall. For the second month in a row, the Purchasing Managerâs Index (PMI) indicated a contraction in manufacturing.
Nvidia â and semiconductor stocks in general â were hit hardest. Expectations in the industry have been high and weak economic activity is a threat to this.
Is this a big problem? I doubt it â the PMI data indicates the sector has been in contraction for 21 of the last 22 months and Nvidiaâs growth has been nothing short of spectacular.
I suspect Nvidia is more resilient than most US businesses. Its customers have deep pockets and itâs seen as the only way to participate in the artificial intelligence (AI) revolution.
I therefore donât think the company is 9.5% worse than it was a couple of days ago. But if the stock was significantly overpriced then, it might still be that way now.
Is it undervalued?
The next question for investors is the big one â are Nvidia shares now undervalued after their latest drop? This is a much tougher issue, in my view.
I think a lot depends on the companyâs competitive position. And I have two big questions here that are difficult to answer.
Nvidiaâs GPUs are needed for training (setting up) large language models (LLMs). But itâs less clear to me that theyâll be needed for inferencing (making predictions) once LLMs are set up.
Iâve seen it suggested that CPUs (which are cheaper and produced by companies like Intel) might be sufficient for this. If thatâs true, the extreme demand for GPUs could fall away.
The other big question is how long the company can maintain its edge in accelerated computing. Things look positive in the short term, but itâs a little less clear further ahead.
With the launch of Blackwell, Nvidia looks to have successfully maintained its lead for now. But the pace of innovation in this industry is rapid and that makes the future uncertain.
Is this my buying opportunity?
I donât think metrics like price-to-earnings (P/E) ratios are much use in valuing Nvidia shares right now. The stock has been trading at a high multiple for some time.
The strong performance from the underlying business, however, has been enough to drive the price higher. So the question is: how long can this last?
I find this one a bit too difficult to assess with much confidence. The issues here are technical and complicated and without these competences, thereâs a lot of risk for investors.
Iâve stayed away from Nvidia so far and itâs outperformed anything in my portfolio â too bad for me. But itâs important to stick to things I know better, so Iâm going to keep watching.
The post As the Nvidia share price falls another 9.5%, is this my time to invest? appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
Are Nvidia shares oversold in September 2024?
Hereâs how Iâd find shares to buy to ride the AI wave for the next 20 years
I wouldn’t touch Nvidia stock with a bargepole right now
Nvidia stock just fell despite smashing targets. Is this a golden opportunity to buy?
As the Nvidia share price tumbles 8%, is this my time to invest?
Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
