Fear, uncertainty and doubt have been weighing on AI stocks lately. Nvidia (NASDAQ:NVDA) is no exception. Trading for around $120 per share at the start of July, shares in this AI chip front-runner has slipped down to just over $110 per share.
Yes, based on recent headlines, the “FUD” surrounding Nvidia and its peers isn’t cooling down. Analysts like BofA’s Savita Subramanian are saying “AI hype days are over,” with the market’s further shift to a “show me” stance leading to additional price declines.
That’s not all. If shifting sentiment isn’t disheartening enough, the fact that Nvidia insiders like CEO Jensen Huang continue to trim down their personal positions in NVDA may be perceived to be another sign to cash out and take profit, while the going’s still good.
Yet while nobody’s stopping you from doing this, you may want to respond differently than the fearsome crowd are to recent developments. Doing so may prove to be the more profitable move.
Why Nvidia Stock is Falling Out of Favor
As you likely know, Nvidia was faster than its competitors, when it came to capitalizing on the emergence of generative artificial intelligence.
As a result, this chip designer has thus far benefited the greatest from booming demand for high-performance, AI-compatible chips for use in AI infrastructure.
Still, there’s a good reason “AI winner” Nvidia stock is pulling back alongside “AI chip contenders,” as well as shares in Big Tech companies that are currently investing billions to build out their AI capacity. Concerns are rising that the AI gold rush is just about to end.
Over the past few weeks, Wall Street has become more skeptical that Big Tech’s big investment in AI will produce a satisfactory payoff anytime soon. As a result, investors are no longer pricing-in GenAI growth as strongly into major software stocks like they were previously.
In turn, the prospect of Nvidia’s “Magnificent Seven” peers hitting the brakes on AI spending means investors are now anticipating a massive slowdown in the company’s growth.
However, there may be a silver lining here. It’s possible that growth deceleration risk is already well priced-in. At least, when you consider NVDA’s current valuation.
A Possible Earnings Season Winner
Shifting sentiment on the AI growth trend has affected major tech stocks so far this earnings season. While not certain, this may continue in the coming weeks, as more “Mag 7” components release their latest results and updates to guidance.
However, it’s worth noting that the next earnings release for Nvidia stock isn’t until next month.
Yes, it’s possible that NVDA continues to trend lower, between now and its scheduled Aug. 28 earnings release.
However, this further pullback could be simply the prelude to a faster-than-expected recovery. How so? For one, between now and earnings day, the current wave of “AI FUD” could simmer down.
By late August, instead of looking for reasons to sell AI stocks, investors could be looking for reasons to buy. Nvidia could unveil such a strong reason, with its latest numbers.
Despite the doom and gloom, according to Seeking Alpha, 38 out of 40 analysts covering NVDA have made upward revisions to their quarterly earnings forecasts.
Hence, Nvidia could be poised to deliver another “beat and raise” quarter, much like it did last quarter. If this happens, NVDA could be one of the few winners among tech stocks this earnings season.
Bottom Line: Stay Long, as NVDA’s ‘Topping Out Moment’ Hasn’t Likely Yet Arrived
Beyond just the potential for NVDA to make a near-term recovery, keep in mind too that the long-term picture remains bright for this top-performing AI stock.
As hinted earlier, it’s possible that uncertainty has become too overly-factored into Nvidia’s valuation.
Shares today trade for 40.7 times estimated earnings for fiscal year ending January 2025. That may not sound super low, but even walked-back earnings growth forecasts still call for Nvidia’s earnings to rise by around 36% next fiscal year.
If the company manages to beat these forecasts, the market could again rerate NVDA to a higher multiple.
Even if growth only comes in at the 30%-40% range in the years ahead, this could still drive steady gains for Nvidia.
As shares could not just re-hit their recent all-time split-adjusted high, but reach new highs in the years ahead, a “topping out moment” for Nvidia stock hasn’t likely yet arrived.
Nvidia stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
