Is it time to buy Nvidia stock?

The rise of artificial intelligence (AI) has fueled the rise of stocks Nvidia (NASDAQ: NVDA) to incredible gains over the past year, from a 52-week low of $39.23 in 2023 to a high of $140.76 on June 20. This resulted in a 10-for-1 stock split and a 150% dividend increase in 2024.

Now, after several consecutive quarters of impressive sales, Wall Street’s expectations for the semiconductor giant are quite high. That seems to have contributed to Nvidia’s shares falling after it reported earnings on Aug. 28.

Does Nvidia’s recent share price decline create a buying opportunity? Or does the company’s latest earnings report signal warning signs? To answer these questions, let’s take a look at where the company is now.

Customer demand for Nvidia products

First, let’s review results from the fiscal second quarter, which ended July 28. The company reported a 122% year-over-year increase in Q2 sales, reaching a record $30 billion.

That triple-digit revenue growth was no small feat considering what was accomplished in the second quarter of fiscal 2023. During that time, Nvidia achieved 101% year-over-year sales growth as generative AI took off.

Q2 2023 results with another year-on-year triple-digit growth show insatiable customer demand for Nvidia products. This is a key reason for the company’s investment appeal.

CEO Jensen Huang, describing what’s driving this right now, said, “The demand for Hopper remains strong, and the expectations for Blackwell are incredible.” Hopper is Nvidia’s platform name for its current generation of graphics processing units (GPUs) designed specifically for AI.

The company expects Hopper GPU shipments to increase in the second half of fiscal 2025. Blackwell is Nvidia’s next-generation GPU platform, with production set to begin in Nvidia’s fourth fiscal quarter and continuing into fiscal 2026.

Both Hopper and Blackwell GPUs recently won awards for their industry-leading AI inference performance. Inference measures the ability of an AI to make decisions and execute tasks correctly. These results show why Nvidia products are in such high demand.

Reason for Nvidia stock price drop after Q2 financial results

As a result of customer demand that the company is experiencing, Nvidia estimated that its revenue for the fiscal third quarter would reach about $32.5 billion. This represents a nearly 80% increase from $18.1 billion in the previous year.

However, because forecasted third-quarter sales did not rise as dramatically year-over-year as they did in the second quarter, some on Wall Street took that as a sign of slowing growth, sending Nvidia’s stock price lower.

Moreover, Huang had previously suggested that Blackwell’s production would increase in the third quarter of the fiscal year, so the delay in the fourth quarter affected third-quarter sales estimates.

However, the consensus among Wall Street analysts is a “buy” rating with a median price target of $147.80 for Nvidia shares. As this target shows, Wall Street believes the stock still has upside potential, especially after the recent price decline.

To buy or not to buy Nvidia stock

I agree with the Wall Street consensus that Nvidia stock is a buy. Looking at the price-to-earnings (P/E) ratio, a commonly used measure of stock valuation, Nvidia appears undervalued compared to its main competitors AMD AND Intel.

Data by YCharts.

This is driven by Nvidia’s growth in diluted earnings per share (EPS). In Q2, EPS reached $0.67, an impressive 168% year-over-year increase. Additionally, the company more than doubled its free cash flow (FCF) in fiscal Q2 to $13.5 billion from $6.1 billion in 2023.

Another positive factor in Nvidia’s second-quarter results was year-over-year sales growth across all business lines, including its gaming division. Gaming revenue rose 16% year-over-year to $2.9 billion.

That’s significant because rival AMD’s gaming sales fell a whopping 59% year over year in Q2 to $648 million. As the results show, Nvidia is able to maintain strong demand, even in markets where its competitors are struggling.

That strength lends credence to estimates that Nvidia controls about 70% to 95% of the AI ​​GPU market. And with the AI ​​industry projected to grow from $136 billion last year to $826 billion by 2030, a long-term investor has years of industry growth to reap the rewards of owning Nvidia stock.

Is it worth investing $1000 in Nvidia now?

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Robert Izquierdo has positions in Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 call options on Intel. The Motley Fool has a disclosure policy.