Tech stocks have been driving the rally in U.S. markets since the beginning of 2024, but they are now showing signs of vulnerability, especially after underwhelming earnings for the June quarter. Nvidia (NASDAQ:NVDA), which is yet to release its quarterly earnings, has seen its stock tumble by nearly 25% from its 52-week highs, pushing it into bear market territory. Despite this, Nvidia stock remains the second-best-performing component of the S&P 500 Index (INDEXSP: .INX) in 2024, trailing only behind fellow artificial intelligence (AI) player Super Micro Computer (NASDAQ:SMCI).
Even after the recent decline, Nvidia stock has more than doubled in 2024. The company has been a stellar wealth creator for patient investors, delivering astronomical returns. Over the past 20 years, Nvidia’s stock price has surged an astonishing 99,999%, far outpacing other chipmakers like Intel (NASDAQ:INTC), which has struggled in comparison.
Given Nvidia’s track record of generating strong returns, the question arises: Should investors buy the dip, or wait for even more attractive entry points? This article will delve into the current Nvidia stock forecast and explore why the stock has recently faced such sharp declines.
Why Did Nvidia Stock Sell Off?
Nvidia’s recent stock decline may have been triggered by several factors. While the broader tech sell-off began only recently, Nvidia stock started to show weakness in mid-June. Here are some reasons contributing to the drop:
Rising Competition in the AI Chip Market: Nvidia has been a leader in AI chips, but increasing competition from other tech giants and startups is causing concern among investors.
Tighter Export Controls on China: The escalating U.S.-China rivalry in AI has led to greater restrictions on chip exports, which could impact Nvidia’s sales.
Sustainability of AI Investments: There are doubts about whether the massive capital expenditures by chipmakers in AI will continue at the current pace.
Delays in AI Chip Launches: Reports suggest that Nvidia’s much-anticipated Blackwell chips might face delays due to design issues.
Antitrust Investigations: The U.S. Department of Justice is reportedly investigating Nvidia for potentially abusing its market position in the AI chip industry.
High Valuations: Despite the drop, Nvidia’s stock is still considered highly valued by many analysts.
It’s clear that Nvidia’s meteoric rise was fueled by optimism over its AI chips, which have set industry standards. However, the risks and challenges it faces are real and could have a significant impact on its stock performance.
The Good, the Bad, and the Ugly of Nvidia’s Stock Forecast
While the concerns about Nvidia are valid, opinions differ on their long-term impact. Nvidia’s AI chips have been widely adopted, and despite the competition, no other company has managed to erode its dominant market share. However, regulators have taken notice of this dominance, leading to an investigation that could weigh on Nvidia’s stock.
There are also reports that Nvidia’s Blackwell chips could be delayed, which contrasts with CEO Jensen Huang’s optimistic outlook during the fiscal Q1 2025 earnings call in May, where he projected significant Blackwell revenue for the year.
Further risks include potential restrictions on sales to China, which could escalate if political conditions change, particularly if former President Donald Trump returns to office. Companies like Nvidia and Apple (NASDAQ:AAPL) that have significant exposure to China saw their stock prices plummet in late 2018 when U.S.-China tensions escalated.
On the brighter side, Nvidia’s valuations are now more reasonable, trading at a next 12-month (NTM) price-to-earnings (PE) ratio of about 34x, down from the peak of over 45x in June. Additionally, concerns over reduced AI investments may be overblown, as recent earnings calls from major tech companies indicate continued strong investments in AI, which bodes well for Nvidia’s future revenue.
Should You Buy the Dip in Nvidia Stock?
Wall Street analysts remain optimistic about Nvidia stock, with a consensus rating of “Strong Buy.” The stock’s mean target price of $141.29 represents a 35% upside from recent levels.
In conclusion, while the second half of 2024 may bring higher volatility and lower returns, Nvidia’s strong position in the AI chip market and its now more reasonable valuation make it a compelling buy for long-term investors. Buying Nvidia stock gradually in August could be a prudent strategy as the tech sector navigates this turbulent period.
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