Nasdaq correction: Time to buy the dip on Nvidia?

Let's take a look.

| More on:
AI written in blue on a digital chip.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) has moved into correction territory (down at least 10% from all-time highs). A significant contributor to that drop has been Nvidia (NASDAQ: NVDA) stock, which is down about 20% year to date, as of this writing. The chipmaker reported outstanding results recently, but investor concerns about tariffs and the U.S. suddenly looking like it could be headed toward a recession have rattled the market in the near term.

For investors interested in Nvidia who have a long-term mindset, this price correction presents a great opportunity to scoop up Nvidia shares on the cheap. Let's look at three reasons why the stock is a must-buy for the long term on this dip.

1. Nvidia is the artificial intelligence infrastructure leader

With an approximate 90% market share for graphics processing units (GPUs), Nvidia is the dominant leader among the chip designers that are powering the artificial intelligence (AI) infrastructure buildout. While originally designed to speed up graphics rendering in video games, Nvidia's GPUs' fast processing times have made them ideal for helping train large language models (LLMs) and running inference for AI.

In addition, the company's CUDA (Compute Unified Device Architecture) platform has helped create a wide moat for the company. Nvidia became the first company to allow GPUs to be programmed for tasks outside their original purpose back in 2006 through CUDA. As such, developers learned to program GPUs using Nvidia's software platform.

Rival Advanced Micro Devices (NASDAQ: AMD) didn't introduce its ROCm (Radeon Open Compute) software platform until about 10 years later in 2016. Meanwhile, through CUDA-X, which was built on top of CUDA, Nvidia now has a full software stack comprised of libraries, microservices, and tools designed to accelerate applications in the areas of AI and high-performance computing.

CUDA and CUDA-X continue to be the primary reason for Nvidia's dominance, particularly in AI model training. In a recent study, semiconductor research outfit Semianalysis found AMD's latest GPUs unusable for AI training out of the box due to software bugs, while praising Nvidia's chips. As such, Nvidia remains the company best positioned to continue to benefit from AI infrastructure growth.

2. AI data center infrastructure continues to grow

Despite Chinese AI company DeepSeek's claims of building an effective AI model cheaply (how effective it actually is is in dispute), the best-known way to advance AI models currently is through brute compute-power force. This means building out systems with more and more AI chip clusters.

Recent AI model iterations have needed exponentially more GPU chips to be trained on than their predecessors. For example, Meta Platform's Llama 4 LLM needed 10x as many GPUs to be trained on than Llama 3. Elon Musk-backed xAI, meanwhile, originally used 5x the GPUs (100,000) to build out its Grok 3 model before bumping it up to 200,000 GPUs.

Meanwhile, cloud computing companies, along with other tech companies, are pouring money into building AI data centers. The big three cloud computing companies plan to spend a combined $255 billion building out AI data centers this year to help keep up with demand.

Cloud computing is an infrastructure-as-a-service platform, and customers have been using these services to help customize and build their own AI models and applications. Meanwhile, Meta plans to spend up to $65 billion in capital expenditures (capex) this year largely aimed at expanding its AI infrastructure, while a consortium led by OpenAI and Softbank have pledged to spend $500 billion over the next few years building out AI data centers in the U.S. through Project Stargate.

This all points to a lot of continued future spending on AI infrastructure in the years ahead. As such, Nvidia remains well-positioned to continue to grow.

3. Nvidia stock is inexpensive

The third big reason to own Nvidia is that its stock remains attractively priced. The stock currently trades at a forward price-to-earnings ratio (P/E) of 24 times 2025 analyst estimates and a price/earnings-to-growth ratio (PEG) of below 0.5. PEG ratios under 1 typically indicate a stock is undervalued, and growth stocks will often trade at PEGs well above 1.

NVDA PE Ratio (Forward) Chart

Data by YCharts.

Nvidia isn't a software-as-a-service (SaaS) company with a recurring and predictable revenue stream, so it isn't going to command the same type of valuation multiple as these types of companies -- nor should it. However, its current valuation is inexpensive, given that we still appear to be in the early days of AI and that AI infrastructure spending will continue to rise. As such, the recent pullback looks like a solid buying opportunity in the stock long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in S&P/ASX 200 right now?

Before you buy S&P/ASX 200 shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and S&P/ASX 200 wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool Australia has recommended Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Warren Buffett
International Stock News

Countdown to Berkshire's AGM: What do investors expect to hear from Warren Buffett this year?

All eyes will be on Omaha, Nebraska this weekend.

Read more »

A smiling woman holds a Facebook like sign above her head.
International Stock News

Meta surges on blockbuster earnings report

It's a good day to be a Meta investor.

Read more »

A family sits on their couch, eyes glued to the television.
International Stock News

Can Netflix be a $1 trillion company by 2030?

How much more can it grow its subscription base?

Read more »

A man looking at his laptop and thinking.
International Stock News

Stock-split watch: Is Nvidia next?

It was nearly one year ago that Nvidia last split its stock.

Read more »

A man looking at his laptop and thinking.
International Stock News

Here's why Berkshire Hathaway stock is a buy before May 2

Giving Buffett and his team your cash to invest for you is likely to be a solid choice no matter…

Read more »

Robot dab indicating a rocketing ASX share price
International Stock News

For Tesla shares, the future rests on autonomous driving and robotics

Tesla has been under pressure lately, with EV demand dwindling.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Which Magnificent Seven company is currently the cheapest?

The cheapest 'Mag Seven' stock today might surprise you.

Read more »

Warren Buffett
International Stock News

7 things to know about Warren Buffett's Berkshire Hathaway — Some may surprise you

See how many you didn't know, and then consider whether you might want to invest in Berkshire Hathaway.

Read more »