Amid 14% Selloff, Nvidia Just Hits Investors With Rude Awakening What should Investors do?

The capital market starts to get very busy in 2024. However, the S&P 500 and Nasdaq Composite has given back some of the gains over the last month or so as equities have experienced some pronounced selling activity. At the time of this article, it shows artificial intelligence (AI) dear Nvidia (NASDAQ: NVDA) has fallen nearly 14% in the last month.

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

What happened to Nvidia stock?

There are many factors affecting Nvidia’s stock price today.

For starters, the unemployment rate unexpectedly rose to 4.3% in July – the highest level in two years. Additionally, recent comments from the Federal Reserve continue to have economists questioning whether or not interest rate cuts are on the horizon.

All things considered, the cloudy macroeconomic picture coupled with some general election-driven volatility has certainly prompted some investors to start selling stocks and hoarding cash amid the uncertainty. Unfortunately, this is only one side of the equation for Nvidia investors. Perhaps most notably, Nvidia’s highly anticipated Blackwell graphics processing unit (GPU) has been plagued by design flaws, according to several media outlets.

Considering companies of all sizes and every industry are doubling down on generative AI investments, Nvidia Blackwell’s delay isn’t exactly inspiring. However, I don’t think this should be a reason for investors to hit the panic button.

Why Blackwell’s delay was not a problem

While estimates vary, common research suggests that Nvidia has at least 80% of the AI ​​chip market. So, while Blackwell’s launch delay may be a bit of light, it’s unlikely that Nvidia will lose significant market share due to this design error.

Chief Investment Officer of Harvest Portfolio Management Paul Meeks recently expressed similar sentiments during an interview on CNBC. He makes a good point that demand for Nvidia GPUs is so high that the company should have no problem selling Blackwell chips once they hit the market – regardless of the delay.

Additionally, every “Magnificent Seven” company has reported earnings this season except for Nvidia. One common thread connecting the mega-caps is that spending on AI-powered products and services has steadily increased over the past year. In particular, capital spending (capex) is rising among mega-cap technologies as demand for cloud computing infrastructure, data center services, and semiconductor chips increases.

The story continues

Considering that much of Nvidia’s current revenue growth originates from hardware operations in chips and data centers, I think the rising investment in capex among big tech companies represents a compelling secular narrative around Nvidia’s bright future.

Buy the dip like there’s no tomorrow

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

In 1997, Apple almost filed for bankruptcy. Currently, Apple is the largest company in the world by market capitalization. Even the best companies hit the road from time to time. What is more important is how management is dealing with these challenges now.

The chart below shows Nvidia’s price-to-earnings (P/E) ratio and price-to-earnings (P/FCF) ratio over the past month. While the 14% decline in Nvidia stock may not seem like much in the grand scheme of things, the compression this decline has created in multiple valuations in such a short period of time should not be overlooked.

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

I don’t see that initiative as Nvidia’s stock price right now. In fact, I wonder what Nvidia is doing outside of GPUs that we don’t understand yet. For that reason, I think the reaction to Blackwell’s delay has been overblown and see the recent sales as a futile opportunity to buy Nvidia stock now because it’s more profitable in the long run.

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Adam Spatacco has positions in Apple and Nvidia. The Motley Fool has positions 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? this was originally published by The Motley Fool