Amid a 14% selloff, Nvidia just hit investors with a rude awakening. What should investors do?

Equity markets have had a great start to 2024. However, S&P 500 and Nasdaq Composite have given back some of their gains over the past month as the stock has seen strong selling activity. As of the time of this article, artificial intelligence (AI) stocks dear Nvidia (NASDAQ: NVDA) they are down almost 14% in the last month.

While some of the decline can be attributed to selling in the broader market, Nvidia recently hit investors with some disappointing news. Should investors be bothered by this dilemma, or is this a rare chance to buy the dip in AI’s best stocks?

What’s Happening to Nvidia Stock?

There are a lot of factors influencing Nvidia’s recent share price action.

For starters, the unemployment rate unexpectedly rose to 4.3 percent in July — the highest level in two years. Furthermore, recent comments from the Federal Reserve continue to have economists questioning whether or not an interest rate cut is on the horizon.

All things considered, the murky macroeconomic picture coupled with typical election-driven volatility has certainly prompted some investors to start selling stocks and raising cash amid a fund of uncertainty. Unfortunately, that’s only part of the equation for Nvidia investors. Perhaps most worrying of all, Nvidia’s highly anticipated Blackwell graphics processing unit (GPU) is experiencing delays due to design flaws, according to multiple media outlets.

With companies of all sizes and every industry doubling down on generative AI investments, Nvidia’s Blackwell delay doesn’t exactly inspire confidence. However, I don’t think this is necessarily a reason for investors to hit the panic button just yet.

Why the Blackwell delay is no big deal

Although estimates vary, public research suggests that Nvidia has at least 80% of the AI ​​chip market. So while a Blackwell launch delay may be a low light, it’s extraordinarily unlikely that Nvidia will lose significant market share as a result of this design blunder.

Paul Meeks, Chief Investment Officer of Harvest Portfolio Management, recently expressed a similar sentiment during an interview on CNBC. He makes a great point that demand for Nvidia’s GPUs is so high that the company will have no real problem selling Blackwell’s chips once they actually hit the market — regardless of the delay.

In addition, every one of the “Magnificent Seven” companies reported earnings this season, except for Nvidia. One common thread that unites the mega-staples is that spending on AI-based products and services has steadily increased over the past year. In particular, capital spending (capex) has been on the rise among tech mega-caps as demand increases for cloud computing infrastructure, data center services and semiconductor chips.

The story continues

Given that most of Nvidia’s revenue growth currently comes from hardware operations in chips and data centers, I think the growing capex investment among major tech companies is a compelling secular narrative around Nvidia’s bright future.

Buy dip like there’s no tomorrow

When investors are hit with bad news, it’s always important to zoom out and consider all the variables.

In 1997, Apple almost filed for bankruptcy. Today, Apple is the largest company in the world by market capitalization. Even the best companies stumble from time to time. What is more important is how management navigates these challenges at this time.

The chart below illustrates Nvidia’s price-to-earnings (P/E) and price-to-free multiple (P/FCF) ratio over the past month. While a 14% drop in Nvidia stock may not seem like much in the grand scheme of things, the compression this drop has put on valuation multiples in such a short time frame shouldn’t be taken lightly. sight.

Outside of its GPUs, the company is quietly building a software platform to complement its core chip business. In addition, the company has made a number of strategic investments in areas such as robotics to further diversify its AI ecosystem.

I don’t see any of these initiatives priced into Nvidia stock at this point. In fact, I think a lot of what Nvidia does outside of GPUs is still not fully understood. For these reasons, I think the reaction to Blackwell’s delay is overblown, and I see the recent selloff as an opportunity to buy Nvidia stock right now, as additional gains appear to be in store for the long term.

Should you invest $1,000 in Nvidia right now?

Before buying Nvidia stock, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now…and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $763,374!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns as of August 12, 2024

Adam Spatacco has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.

Amid a 14% selloff, Nvidia just hit investors with a rude awakening. What should investors do? was originally published by The Motley Fool