Is the stock market selloff a reason to buy Nvidia stock?

Investors are waiting for a pullback Nvidia (NVDA -0.21%) the stock may think the opportunity has arrived. The stock has retreated since peaking at just over $140 a share in June. Investors should also remember that it has lost more than half its value twice since 2018.

However, artificial intelligence (AI) stock has grown nearly 2,400% over the past five years. Indeed, Nvidia has gained much of this growth due to its leadership in the AI ​​chip space. But amid the selloff in tech stocks, should investors start buying now or hold out for a lower stock price?

Nvidia status

Nvidia started as a gaming company and is involved in areas such as automotive and professional visualization. More recently, the stock has skyrocketed thanks to its work to become the dominant company in the AI ​​chip space.

Although Advanced microdevices, Qualcommand others have offered competing products, Nvidia is the technical leader, dominating at least 80% of the market. Also, the price tag of $30,000 or more for its AI chips is well above what its peers in this market can command.

However, as mentioned, the stock has sold off in recent weeks. In addition to the general selloff in the tech sector, the Department of Justice has hit Nvidia with multiple investigations into its dominance in the AI ​​chip sector, according to The Information.

The same publication also reported that design flaws will delay the launch of its next-generation Blackwell AI chip. This may have a wider impact on the technology market as cloud providers such as Amazon, Alphabetand Microsoft they can count on this technology to give investors a share of the productivity gains.

How it affects Nvidia

Of course, its financial situation may have little direct impact. The AI ​​chip market is expected to grow at a compound annual growth rate of 38% through 2032, and Nvidia and its peers have struggled to keep up with demand.

In the first quarter of fiscal 2025, Nvidia’s revenue rose 262% to $26 billion. Also, while we won’t know how it will perform in the fiscal second quarter until the August 28 earnings release, it expects mid-quarter revenue of $28 billion, which would represent 107% year-over-year growth.

Nvidia’s problem is that its stock is probably still priced at perfection, and development processes and delays indicate it’s not up to that standard. Given its rapid growth, the price-to-earnings (P/E) ratio of 59 may seem justified.

However, other valuation metrics point to an expensive stock. Its price-to-sales (P/S) ratio of 31 exceeds AMD’s sales multiple of just over 9. Also, its price-to-book ratio of 50 is well above AMD’s book value multiple of 4. Although the technical leader of Nvidia requires a premium, such levels seem excessive given Nvidia’s challenges.

Should Investors Buy Nvidia?

When it comes to buying Nvidia, the answer can be either buy now or hold out for a lower price. Here’s why.

Due to Nvidia’s dominance of the AI ​​chip market, revenue and profits will likely continue to grow rapidly, even with the delayed launch of Blackwell chips. Thus, it will likely remain a long-term winner at almost any price.

However, investors should invest in dollar-cost averaging (DCA) instead of buying all at once. Given Nvidia’s recent challenges and high multiples, the chances of another near-term pullback are high.

Also, as mentioned, Nvidia stock has lost more than 50% of its value twice since 2018. Therefore, investors cannot rule out such a decline again. DCA investing can serve as a compromise between owning Nvidia stock without denying yourself the opportunity to buy at a lower price.