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Nvidia (NVDA) Stock Poised to Enter Bear Market Territory. Time to Buy?
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After hitting an all-time high in intraday trading last month, shares of artificial intelligence chipmaker Nvidia (NASDAQ:NVDA) quickly fell into a technical correction after losing 10% of its value.
Now, despite a few false starts higher, NVDA stock continues to drift lower and now hovers above bear market territory, or a 20% decline from the high.
Although the semiconductor stock still carries ultra-premium valuations, is the declining price point an entry point for investors on the sidelines? Let’s take a closer look to find out.
24/7 Wall St. Insights:
- Nvidia (NVDA) stock crossed into correction territory and is rapidly heading to entering a bear market.
- While the AI opportunity remains large and growing, the chipmaker faces formidable competition, though there should be plenty of business for everyone.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Burgeoning AI demand
The market is worried about slowing growth. Although Nvidia reported revenue nearly doubled in the third quarter to $35.1 billion and forecasts fiscal full-year sales of $129 billion, or 112% more than last year, management guided fourth-quarter sales to a 64% gain, which suggests a sharp slowdown in growth.
Despite the swelling demand for its advanced Blackwell chips due out next year, and the burgeoning demand overall for AI accelerators, there is a growing belief there may be other, better ways to play the situation.
One of the immediate beneficiaries has been Broadcom (NASDAQ:AVGO). Although Nvidia is outperforming AVGO stock in 2024, in the last six months, data center infrastructure chipmaker has taken the lead. AVGO is up 39% since June while NVDA is down 2%.
Broadcom reported its fiscal fourth-quarter results the other day and investors sent its stock stratospheric on its AI potential. The semiconductor stock became the latest company to burst through the trillion-dollar valuation threshold.
Yet as good as Broadcom’s results were, they also validated the potential Nvidia still holds. Hyperscalers, or very large data centers, are building out facilities that will use 10 times the number of AI accelerators as they do today.
The field grows more competitive
The risk is more for Nvidia than Broadcom due to the type of AI chip they develop. The largest hyperscalers such as Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), and Meta Platforms (NASDAQ:META) are racing to make their own in-house AI chips to reduce their reliance upon third-party suppliers.
Amazon is just one hyperscaler increasing its capital expenditures for more data centers. It invested $10.3 billion just in Ohio for facilities to meet the needs of its cloud computing division, Amazon Web Services. By 2030, the investment is expected to grow to $23 billion.
It helps explain why investors are plowing into AVGO stock while walking away from NVDA, even though both carry relatively similar valuations. But profit-taking on Nvidia may also be part of the issue. Since the AI boom began in earnest in late 2022, shares of the industry leader have gained nearly 750%. A $1,000 investment in NVDA in November of that year would be worth more than $8,400 today, a 190% compound annual growth rate.
Expanding its reach
It is true the AI landscape is rapidly changing. CEO Jensen Huang has called demand for Nvidia’s Blackwell superchip “staggering.” Although some hiccups in manufacturing have delayed its debut, customers are not turning away. And Nvidia is not resting on its laurels. It is in the midst of developing the next-generation AI chip, codenamed “Rubin.
Nvidia is also investing in other aspects of its large and varied business, including automotive and robotics and is now going down market to appeal to smaller companies. Barron’s reports its $249 Jetson computer is targeting small businesses and even hobbyists. Neither of these ancillary opportunities will approach the data center market in terms of size of revenue contribution, but it extends Nvidia’s reach and incrementally improves its income statement.
Key takeaway
With that said, I still have trouble recommending NVDA stock at these lofty valuations. I’ve been looking for a pullback in the share price and the 10% correction was a good start. If it dips 20% below its intraday high from last month it will be even better.
My recommendation would be to be judicious in buying the stock if it falls into bear market territory, and become more aggressive if it falls further. There is still a long runway of growth for the chipmaker and it remains a name you’ll want in your portfolio as the AI opportunity expands.
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