In the coming weeks, I believe there’s a good chance that Nvidia (NASDAQ:NVDA) stock will fall meaningfully. But given the company’s huge opportunities in AI and automobiles, I believe that the shares’ weakness would create a very good buying opportunity for long-term investors.
| NVDA | Nvidia | $292.54 |
Why NVDA Stock Looks Poised to Sink in the Next Two Weeks
Nvidia is due to report its first-quarter financial results on May 24. The value of cryptocurrencies hasn’t risen much since January, and according to many sources, PC sales reportedly bottomed last quarter. Many of Nvidia’s chips are used to power crypto mining and PCs, so both factors will likely weigh on the company’s first-quarter results. Similarly, the video game sector has not been particularly strong in recent months.
Moreover, the current tremendous interest in artificial intelligence did not start materializing until last quarter, and it takes time for companies in general and larger firms, in particular, to decide to buy and purchase products.
Also noteworthy is that Washington’s debt ceiling fight will likely weigh on equities, including NVDA stock, in the coming weeks.
And finally, the valuation of NVDA stock, which has a forward price-earnings ratio of 63, remains quite high.
Nvidia’s second-quarter guidance could align with analysts’ average estimates or even a bit better than expected. But, given the points I outlined above, I still expect the shares to sink after its Q1 earnings report.
Why Investors Should Consider Buying NVDA Stock on Weakness
As I noted in a previous column, “Nvidia’s chips that power artificial intelligence are fetching prices” 10-20 times above their usual levels, driven by the current tremendous growth of AI. And the demand for such chips is expected to only surge going forward.
Also importantly, speaking in March, Nvidia CFO Colette Kress said that both “large enterprises” and “startups” were looking to buy Nvidia’s chips to power various AI applications, including “a chatbot,” and “a simulation of their factories.”
Moreover, the CFO reported that Nvidia saw demand for its chips from Communication Service Providers that have to provide AI systems for their customers. Since many CSPs are quite large –think Meta (NASDAQ:META), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, GOOGL), and Microsoft (NASDAQ:MSFT) — CSPs are likely to buy many of Nvidia’s chips at high prices in the coming quarters and years, to power their AI systems.
On the auto front, many of China’s electric vehicles are using Nvidia’s chips. With the sales of EVs surging in the Asian country, Nvidia’s revenue from automakers is poised to jump going forward. And in March, Nvidia reported that its “automotive design win pipeline [had] increased to $14 billion over the next six years.”
Vehicles’ utilization of chips is constantly increasing, and the sector is moving towards higher levels of autonomy, a phenomenon that requires many highly advanced chips.
Finally, with PC sales likely having bottomed last quarter, NVDA will probably get a meaningful bump from the rejuvenation of PC sales going forward.
The Bottom Line on NVDA Stock
In the short term, NVDA stock will probably sink due to the past weakness of the PC and crypto sectors, along with the negative impact of the debt ceiling standoff. Over the longer term, however, the shares should get a big boost from the AI and auto markets.
As a result, it makes sense for the long-term to buy NVDA stock on weakness in the coming weeks.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
