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Nvidia (NASDAQ: NVDA) stock has been one of the best value-creators of all time. Since listing in 1999, it’s gone up more than 289,000%!
The company’s graphics processing units (GPUs) continue to play a pivotal role in the artificial intelligence (AI) industry. And they’re powering an increasingly wide range of applications.
However, Nvidia been a victim of the sharp market sell-off recently. As I write, the share price is down 22% in just over two months.
I parted ways with the stock almost a year ago, but I’m open to potentially reintroducing it into my portfolio at a lower valuation.
Is this my chance? Let’s take a look.
The case against
As things stand, I see a couple of reasons for not buying now. For starters, there’s China. It’s likely that export controls aimed at limiting China’s access to advanced semiconductor technologies, particularly those used in AI, are beefed up even further.
Last year, China (including Hong Kong) accounted for about 13% of total revenue. So the potential loss of access to this market over time would be a big loss, especially given the growth potential of the Chinese tech industry. It’s definitely an overhang for the stock.
Next, Nvidia’s growth is increasingly reliant upon a handful of key customers. These are the giant tech firms that have been gobbling up its GPUs for the past two years. This has afforded Nvidia an extraordinary amount of pricing power.
However, these tech giants are also looking for ways to reduce their reliance on Nvidia and lower costs. One example is Amazon‘s cloud platform (AWS), which has developed its own family of specialised AI accelerators called Trainium.
We obviously have a deep partnership with Nvidia and will for as long as we can see into the future. However…cost can get steep quickly. Customers want better price performance, which is why we built our own custom AI silicon.
Amazon CEO Andy Jassy
The case for
One key reason for me to consider rebuying the stock is the valuation. Based on current forecasts for the 2026-27 financial year, it’s trading at 21 times earnings. On paper, that looks cheap, though of course actual earnings may differ.
Crucially, Nvidia’s chips remain best-in-class and it spends a tonne on innovation to keep them that way. Management says demand for its latest Blackwell chip is extremely strong, which I find very reassuring.
Meanwhile, governments looking to build supercomputers are increasingly becoming customers of Nvidia. This could be a powerful long-term trend.
Finally, co-founder and CEO Jensen Huang is a visionary leader, with an unrivalled knack for capitalising on future trends. As such, the company’s technology could be central to multiple mega-trends, including self-driving cars, the metaverse, humanoid robots, and even quantum computing (one day).
My decision
Nvidia’s share price hasn’t been keeping pace with its rapid earnings growth in recent quarters. Consequently, the valuation looks better than it did when I sold a year ago.
While some customers are developing their own AI chips, Nvidia’s remain the gold standard.
What I’ll do here is keep a close eye on the share price. I’m expecting more market volatility this year with rising uncertainty around the US economy and tariffs. If Nvidia stock drops beneath $100, I may well take advantage.
