The recent bout of market volatility has hit Nvidia (NASDAQ:NVDA) relatively hard. Nvidia stock has dropped 11% in the last 11 trading sessions.
This does appear to be a market-driven selloff. There hasn’t been much news surrounding Nvidia in the last two weeks. The acquisition of Arm Holdings was announced last month. Nvidia earnings aren’t for a few weeks yet. It’s often a bit of a fool’s errand to pin down exactly why a stock has pulled back, but in this case there isn’t an obvious negative catalyst.
As a result, long-term investors should be happy, even thrilled, with the pullback. After all, Nvidia stock has been before. As I’ve detailed before, the stock has seen significant pullbacks several times in recent years. Each proved to be a buying opportunity.
I don’t expect that this time will be any different. Once again, investors can get into one of the market’s best stories at a cheaper price. That’s the definition of an attractive investment opportunity.
Broad market indices have faded of late. The Nasdaq Composite, which generally has a greater exposure to tech stocks, has dropped 8% in less than three weeks after nearing an all-time high.
That weakness no doubt has driven some of the selling in Nvidia stock. And there are three broad narratives behind the market’s selloff.
Second, some observers believe that valuation concerns are a factor. Despite the pandemic, tech in particular has had a monster 2020. The Nasdaq, even with this pullback, has gained 23% year-to-date.
Third, a contentious presidential election looms on Tuesday, and some investors may worry about not just who wins, but how the losing side will react.
These worries have some basis in fact, though I’m not convinced they necessarily explain the market’s recent weakness. But as far as Nvidia stock goes, none of these factors really impacts the long-term case.
A second wave is a worry for Americans as a whole. But it doesn’t change the long-term catalysts driving Nvidia’s growth. If anything, it could provide a modest tailwind, as the pandemic itself has driven adoption of “cloud” services that run on datacenters often powered by Nvidia chips.
Valuation? NVDA isn’t cheap. It still trades at 46x forward earnings. But Nvidia stock shouldn’t be cheap, given its long-term growth opportunity.
As for the election, there will be a lot of noise. But the country will come out the other side, no matter who wins. As Warren Buffett said earlier this year, “Never, ever bet against America.” He’s not wrong.
Nvidia Stock Over the Long Haul
What all of those concerns have in common is that they’re relatively short-term issues. But focusing on the short term is exactly how many investors missed out on explosive gains in Nvidia stock.
Remember that it was less than two years ago when Nvidia stock was plunging. A so-called “crypto hangover” after a burst of sales to cryptocurrency miners led to a number of ugly-looking quarters. NVDA lost more than half its value in the fourth quarter of 2018. Since the beginning of 2019, it has rallied 283%.
This selloff obviously is not nearly as intense. But an 11% move is material. Simply by getting back to where it traded two-plus weeks ago, NVDA would provide returns of 13%. In tech, investors have become almost immune to those kinds of gains. Yet 13%, even if took a year, is a fine return at a time when 10-year U.S. Treasury bonds offer yields of less than 1%.
During the worst days of the pandemic, I advised investors to take the long view. I’d give the same advice now — because that’s always the right investment strategy. Stocks are not about what’s happening next week or next quarter. They’re about the long-term ability to drive earnings, cash flow and growth.
Has Nvidia’s opportunity changed at all? Hardly. Artificial intelligence will drive demand (and Nvidia disclosed sparkling AI performance just last week). Global gaming growth will continue as gamers need more and more power to keep up with better and better games. Autonomous vehicles are on the way, and Nvidia stands to be a big winner in that category.
To top it off, the Arm deal adds to Nvidia’s capabilities and should increase profit margins as well.
Near-term worries don’t dent that case at all. It’s firmly intact. Until that changes, any dip in Nvidia stock is simply another buying opportunity.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.