NVIDIA stock is down 10% because the stock split. Is it time to purchase?
NVIDIA (NASDAQ:NVDA) stock is coming off an uncharacteristically bad month, as its stock price fell about 6% in July — and it could have been rather a lot worse if it didn’t rally 12% on July 31.
The semiconductor behemoth that’s synonymous with AI is now trading at about $110 per share, after falling 6% on Thursday, losing a number of the ground it gained the day gone by. Since its 10-for-one stock split on June 10, NVIDIA stock is down around 10%.
A ten% drop is technically a correction, which was not unexpected because the stock had turn out to be wildly overvalued, as we wrote about back in June.
With the valuation down a bit from there, is that this the suitable time to think about NVIDIA stock?
Excellent news on AI spending
NVIDIA stock has been volatile for the past few days, up and down, based largely on the movements of the markets. On Wednesday, it was buoyed by the Federal Open Market Committee (FOMC) meeting, when the Fed said it was getting closer to lowering the federal funds rate.
NVIDIA also got excellent news from Microsoft (NASDAQ:MSFT), as the corporate reported Wednesday that it’s increasing its investments in AI infrastructure. As NVIDIA is a serious supplier of AI chips for Microsoft, the news was one other catalyst for NVIDIA stock.
One other major NVIDIA client, Meta Platforms (NASDAQ:META), also said it planned to spice up its spending on AI, not only this yr, but in 2025, too.
Nonetheless, the excellent news on AI from Meta on Wednesday afternoon was overshadowed by some disappointing economic news. Jobless claims got here in higher than expected this week, while the manufacturing index, a gauge of producing within the U.S., fell in need of estimates. These signs of perhaps a slowing economy brought down most stocks Thursday, including NVIDIA, as all of the most important indexes were within the red.
It’s all about valuation
NVIDIA doesn’t report earnings until Aug. 28, so we won’t have growth data until then. But growth has not been the difficulty for NVIDIA — its earnings have shown no signs of slowing down. In the primary quarter, revenue rose 262% to a record $26 billion and earnings per share skyrocketed 629% to $5.98 per share.
Within the second quarter, NVIDIA estimated revenue to are available in at $28 billion, which could be one other record. Analysts are calling for $28.4 billion in revenue.
With its semiconductor rival AMD (NASDAQ:AMD) posting strong Q2 numbers already, and the projections from Microsoft and Meta to extend its AI spending, NVIDIA must have one other huge quarter.
But with NVIDIA, considered one of the fastest growing stocks over the past two years, the priority isn’t growth — it’s its valuation.
Is it time to purchase NVIDIA stock?
Although NVIDIA stock has undergone a correction of 10%, it remains to be overvalued with a price-to-earnings ratio of 68, down from 72 in April, and its forward P/E is as much as 44, from 36 in April.
Now, for a corporation with the unparalleled earnings power of NVIDIA, a better P/E ratio is predicted; nevertheless, it still looks a bit too high. With a month left before earnings, in a somewhat volatile market, I’d not be shocked to see the worth drop a bit more, based on the still high valuation.
NVIDIA is an exceptional company and, long run, it’s a stock you must have in your portfolio, whether through a direct investment or an ETF.
But whether it is a matter of when to purchase, it is perhaps clever to watch that valuation and see if there may be one other dip before earnings.