“Is Nvidia’s 27% Drop a Buying Opportunity? Here’s What History Reveals About the Next Steps” | The Motley Fool

Nvidia (NVDA) has been a standout player in the AI market, with its stock soaring over 600% since early 2023. Today, its market cap is around $3 trillion, making it one of the biggest companies globally.

But recently, Nvidia’s stock has hit some bumps. Year-to-date, it’s down about 16%. After a strong earnings report last Thursday, the stock still edged down 8%. The company reported impressive revenue growth of 78% in the fourth quarter, reaching $39.3 billion, surpassing estimates. Its adjusted earnings per share also climbed from $0.49 to $0.89, beating expectations of $0.85. For the first quarter, Nvidia expects revenue around $43 billion, which is better than the $42.05 billion analysts predicted.

Despite this positive news, investors seem wary. The stock has dropped 27% from its recent peak and is at its lowest point since September 2024. Concerns about new tariffs from former President Trump and possible illegal chip exports to China have added to the anxiety.

For investors, this decline poses a tough decision. Many are sitting on significant gains and may wonder if now is the right time to sell, especially as Nvidia’s growth appears to be slowing amid a tricky economic landscape.

Nvidia’s Volatile Journey

The semiconductor industry is known for its cycles of ups and downs, and Nvidia’s rise hasn’t been without its challenges. In fact, during the AI boom since 2023, Nvidia has seen one of its largest pullbacks.

This isn’t the first time Nvidia has faced a downturn. In the past two years, it experienced another major sell-off in July 2024. This drop was fueled by concerns about AI infrastructure investments, especially regarding spending by big cloud companies like Microsoft and Alphabet. Investors worried these companies might be overspending without clear returns.

Despite past struggles, Nvidia has bounced back quickly. After the 2024 dip, the stock regained its all-time highs by October 2024. If we look at a longer time frame, Nvidia has faced significant drop-offs twice in the last decade. The first was in 2018, driven by rising interest rates, tensions with China, and a decline in demand for semiconductors. The second was in 2022, along with the broader tech stock crash. However, both times Nvidia recovered and reached even higher peaks within about a year and a half.

Looking Ahead for Nvidia

It’s tough to predict how long this current decline will last or how low the stock might go. Yet, Nvidia still has strong demand for its chips, particularly the new Blackwell models, which are crucial for AI applications. Cloud companies are ramping up spending this year, further supporting Nvidia’s position.

Even with the recent drop, Nvidia’s stock looks relatively inexpensive at a forward price-to-earnings (P/E) ratio of 25, similar to the S&P 500, while its growth rate far outpaces the broader market.

Nvidia may never be a low-risk investment, but it has a history of recovery from downturns. Its technological edge and solid market position suggest it will continue to grow. With the stock trading at a discount, it could be an appealing option for investors right now.