Nvidia has now lost more than $1.3 trillion in market cap. Is it finally time to buy the stock?

Rampant uncertainty regarding the future of AI has battered the chipmaker.

| More on:
A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.

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.

If investors had to choose just one company that exemplifies both the opportunities and risks associated with recent advances in artificial intelligence (AI), Nvidia (NASDAQ: NVDA) would be a logical choice. The company's graphics processing units (GPUs) have been the linchpin that powered the AI revolution and fueled Nvidia's atmospheric rise, as the stock gained more than 800% in just two years. However, it has since suffered a stark reversal of fortune, plunging 36% (as of this writing) and shedding more than $1.3 trillion from its market cap since earlier this year.

After a slump of this magnitude, is it finally time to buy the stock?

Greedy when others are fearful

Several factors have contributed to Nvidia's downfall in recent months. China's DeepSeek, a high-performance AI model, was created without the benefit of Nvidia's state-of-the-art GPUs. This marked the beginning of the stock's current slump, but it didn't stop there.

Last week, the Trump administration restricted the sale of Nvidia's H20 chips, which were developed specifically to meet the already stringent rules for exporting AI chips to China. This move caused Nvidia to take a $5.5 billion write-off. Some analysts believe this move was made to gain leverage in the ongoing trade war with China, but the move could backfire. Several reports suggest that Chinese chipmakers are boosting production of AI chips in response to the export ban.

However, the situation isn't nearly as dire as it might seem at first glance. Estimates suggest Nvidia's sales to China were roughly $17 billion or about 13% of its total sales for the fiscal year that ended in January. However, accelerating demand for cutting-edge AI processors will likely help Nvidia make up for any sales lost as a result of the export restrictions.

If you have doubts, consider this: Big Four accounting firm PwC estimates that AI could contribute as much as $15.7 trillion to the global economy by 2030. If Nvidia captures just a small portion of that opportunity, the loss of its sales to China will seem like a drop in the bucket. Furthermore, at just 21 times forward earnings, Nvidia stock is a relative bargain for long-term investors. While the stock could still have further to fall, I predict it will be much higher five years from now.

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

Danny Vena has positions in Nvidia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended 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

Man with virtual white circles on his eye and AI written on top, symbolising artificial intelligence.
International Stock News

Where Will Alphabet Be in 5 Years?

Today, the lowest-valued stock in the "Magnificent Seven" is Alphabet, and it's not close.

Read more »

Silhouette of CEO standing in conference room looking out at cityscape.
International Stock News

Who is Warren Buffett's successor Greg Abel?

Buffett's successor has been in training for years.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
International Stock News

Do Google's antitrust woes make Alphabet stock a buy, sell, or hold?

In the past year, Google lost two major antitrust cases aimed at the heart of its business.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

What did we learn from Warren Buffett at Berkshire's AGM over the weekend?

Buffett's final words of wisdom are well worth reading.

Read more »

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

Is "Magnificent Seven" Laggard Microsoft Ready to Rally?

Let's take a look at the company's most recent report and guidance to see if the stock can continue to…

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Meta Platforms: AI continues to drive revenue, but is the stock a buy?

Let's take a look.

Read more »

Happy woman working on a laptop.
International Stock News

Do strong earnings results and a dividend hike make Alphabet a growth stock to buy right now?

There was a lot to like from Alphabet's latest print.

Read more »

hands holding up winners cup, asx 200 winning shares
Share Market News

Guess which stock just became the world's most valuable company?

There's a new sheriff (back) in town.

Read more »