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It has been a rough few days for Nvidia (NASDAQ:NVDA) stock. After recently celebrating fresh record highs and a whopping $5trn market-cap, the share price has corrected lower. Some investors (myself included) have been waiting for a dip to buy.
Here’s my take on whether now’s the time to jump or not.
Reasons for the fall
Before we proceed, it’s essential to understand why the stock’s fallen sharply. This can then help me gauge if it’s a serious issue or not. One factor is the broader market sell-off we’ve seen over the same time period.
The Nasdaq ‘s down 4% in the last week, based on concerns about whether the market is overvalued. Some are worried that tech and AI-related companies are forming a bubble, given the size of the rally in those stocks this year. Nvidia’s seen as the poster child for the AI movement so, logically, it got caught up in this fear.
Another reason is what some are referring to as valuation fatigue. Nvidia’s been an exceptional performer in the market over recent years. It’s up almost 30% over the past year, despite having the highest market-cap globally.
With a price-to-earnings ratio of 53.55, it becomes harder to justify buying, as the room for further gains becomes more limited. Therefore, I think some investors decided to sell and bank the profit, and you can’t blame them for doing so.
Assessing the next move
Although a fall of almost 10% in a week is significant, it only returns the share price to the same levels as late October. So it’s not like I’m able to buy the stock at multi-month lows right now.
Looking ahead, quarterly results are due out next week. This promises to be a key event for the share price, one that will likely dictate the stock’s trend through to the end of the year.
So when I put these two factors together, I think I’ll wait until after the results come out before deciding whether to buy or not. I never like buying a stock just before results come out, as I’m flying blind. For Nvidia, if the fall had been more significant, I might have considered breaking my rule, but it’s not big enough.
However, if the results underwhelm and we see another fall of 10%, or greater, that’s when I think it’s worth adding to my portfolio.
The future remains bright
Although the valuation remains a concern, I maintain a positive long-term view of the company. The fundamentals for Nvidia remain strong, as demand for AI and data-centre infrastructure is still large and expected to grow. I’m still keen to get involved, but given the wider surge in the share price of late (despite the most recent correction), I want to ensure I’m buying at a more sensible valuation. I think investors can consider taking the same view.
