It has not been an easy ride for tech or growth investors. Heck, even regular investors have not had an easy run. The Nasdaq was recently down 30% and the S&P 500 is off to its worst start in four decades. Despite its strong fundamentals, Nvidia (NASDAQ:NVDA) hasn’t fared well either, with NVDA stock down about 50% from the highs.
Measuring from peak to trough, shares fell a whopping 55%. However, we can’t expect NVDA stock to fight through a market-wide correction on its own.
Investors need to understand this right now: We are in a bear market at the moment. Whether that lasts for two quarters or two years is up for debate. However, the silver lining to these market conditions is that it creates excellent long-term opportunities.
Why I’m a Long-Term Bull On NVDA Stock
There are going to be detractors against NVDA stock, complaining about valuation, guilt by association (as it’s a growth and tech stock) or a combination of both. The reality is much simpler. Despite the growing bear market in growth stocks in the fourth quarter, Nvidia was hitting new all-time highs. Once that bear market extended to the entire market, NVDA stock was halved.
Even with the selloff to its stock price, business remains robust. Despite the correction, revenue estimates for this year and next year continue to climb. Specifically, forecasts call for 29% sales growth this year, alongside 27% earnings growth. It leaves shares trading at a reasonable 29 times this year’s earnings estimates.
While these are just estimates, the strong results in the semiconductor space have backed up the industry bullishness. More directly, Advanced Micro Devices (NASDAQ:AMD) recently reported strong quarterly results and delivered strong full-year guidance. AMD is a similar comparison to Nvidia and the fact the former is doing so well bodes well for the latter.
And now we know for sure. Nvidia reported a top- and bottom-line beat on May 25. The stock initially fell on what appeared to be disappointing guidance. However, upon further inspection, investors realized that the impact was from the war in Ukraine and the lockdowns in China. In other words, business is stable — and should remain that way long term.
That’s as Nvidia serves a multitude of secular growth industries. Things like cloud-computing, datacenters, artificial intelligence and machine learning, gaming, robotics, drones, the metaverse, supercomputing, autonomous driving and automotive, graphics and more.
That’s not to say the business is recession proof — it’s not — but these are long-term, long-runway investments and themes. They will continue through a mild recession, if one comes to fruition.
As it pertains to the NVDA stock price, we have an opportunity on our hands. Nvidia is still trading below our initial accumulation price in the $190s. On the plus side though, this is an “accumulation trade” akin to dollar-cost averaging vs. backing up the truck and buying all at once.
What we’re looking at now is a well-defined “ABC” correction down to the 61.8% retracement. That’s as we measure from the all-time high down to the March 2020 Covid-19 lows. It’s even completed with the 161.8% downside extension (from the “B” leg high to the “A” leg low).
If that’s too overwhelming — and it is a mouthful of technical jargon — it’s just to say that the action has been very orderly.
As such, I am comfortable accumulating NVDA stock down 40% to 50% or more from its highs, but acknowledge the risk that we could take out the low near $155 and potentially trade down to the rising 200-week moving average. The post-earnings rally alleviates some of this stress though, as we now have a low to measure against.
Because it’s such a great fundamental company, I don’t mind buying into some painful declines in the short to intermediate term. If shares regain momentum, the $200 to $210 area is significant and reclaiming it could quickly put $230 to $235 in play.
On the date of publication, Bret Kenwell held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.