Is now the time to buy Nvidia stock?

The rise of artificial intelligence (AI) has propelled shares of Nvidia (NVDA 1.51%) to incredible gains over the past year, from a 52-week low of $39.23 in 2023 to a high of $140.76 on June 20. This prompted a 10-for-1 stock split and a 150% increase in its dividend in 2024.

Now, after several consecutive quarters of impressive sales, Wall Street’s expectations for the semiconductor giant are quite high. That appears to have contributed to a drop in Nvidia stock after it reported earnings on August 28.

Does the recent drop in Nvidia’s stock price create a buying opportunity? Or did the company’s most recent earnings signal warning signs? To answer these questions, here’s a look at the company’s current situation.

Customer demand for Nvidia products

To begin, let’s reveal the results of the second fiscal quarter, which ended on July 28. The company posted a 122% year-over-year increase in Q2 sales to a record $30 billion.

That triple-digit revenue increase was no small feat considering what it achieved in the second fiscal quarter of 2023. At that time, Nvidia achieved 101% year-over-year sales growth as what generative AI has begun to discover.

After Q2 2023 performance with another triple-digit year-over-year growth, it illustrates the insatiable customer demand that exists for Nvidia products. It is a key reason behind the company’s investment appeal.

CEO Jensen Huang, describing what is currently driving this, said: “Demand for Hopper remains strong and the anticipation for Blackwell is incredible.” Hopper is Nvidia’s platform name for the current generation of graphics processing units (GPUs) specifically designed for AI.

The company expects Hopper GPU shipments to increase in the second half of its 2025 fiscal year. Blackwell is the next generation of GPU platforms, scheduled for a production ramp-up in Nvidia’s fiscal fourth quarter and continuing into fiscal 2026.

Both Hopper and Blackwell GPUs have recently won awards for industry-leading performance related to AI inference. Inference measures an AI’s ability to make decisions and execute tasks correctly. These results demonstrate why Nvidia products are in such high demand.

The reason Nvidia stock fell in Q2 after earnings

As a result of the customer demand the company is experiencing, Nvidia estimated its fiscal third quarter revenue to be around $32.5 billion. This represents an increase of nearly 80% from the previous year’s $18.1 billion.

However, since Q3 sales estimates do not represent as dramatic a year-over-year increase as Q2, some on Wall Street saw it as a sign of slowing growth, contributing to the price decline Nvidia shares.

In addition, Huang had previously indicated that Blackwell’s production would increase in the fiscal third quarter, so the delay until the fourth quarter affected the third quarter sales estimates.

However, the consensus among Wall Street analysts is a “buy” rating with an average price target of $147.80 for Nvidia stock. As this target reveals, Wall Street believes there is still good upside for the stock, especially after the recent price decline.

To buy or not to buy Nvidia stock

I agree with the Wall Street consensus that Nvidia stock is a buy. Looking at the company’s price-to-earnings ratio (P/E ratio), a widely used measure to gauge stock valuation, Nvidia appears undervalued compared to major competitors. AMD and Intel.

Data by YCharts.

Nvidia’s increase in diluted earnings per share (EPS) also contributes to this. In Q2, EPS reached $0.67, an impressive 168% year-over-year growth. Additionally, the company doubled its fiscal Q2 free cash flow (FCF) to $13.5 billion from $6.1 billion in 2023.

Another positive factor in Nvidia’s Q2 results is year-over-year sales growth across all of its business lines, including its gaming division. Gaming revenue rose 16% year over year to $2.9 billion.

That’s significant because rival AMD’s Q2 gaming sales fell 59% year-over-year to $648 million. As its results demonstrate, Nvidia is able to maintain strong demand, even in markets where competitors are struggling.

This power lends credence to estimates that Nvidia commands close to 70% to 95% of the AI ​​GPU market. And with the AI ​​industry expected to grow from $136 billion last year to $826 billion by 2030, the long-term investor has many years of growth in the industry to reap the rewards of owning Nvidia stock.