Down more than 50%, Nvidia (NASDAQ:NVDA) is yet another tech stock that’s taken a big dive since late last year. The drop in the price of NVDA stock is on par with the drop seen with its main chipmaker rival, Advanced Micro Devices (NASDAQ:AMD). It’s also in line with other former high-flying tech names, beaten down by inflation, interest rate, and recession worries.
Yes, there may be some challenges ahead for the semiconductor industry, but whether that justifies such a plunge for either chip stock is questionable. If you take a closer look, it’s clear that their respective long-term prospects outweigh what could happen in the short term.
In short, it’s possible the market has overreacted. Creating a great opportunity for investors looking to enter a long-term position. After arguing the bull case for AMD stock recently, let’s dive into my current take on Nvidia.
NVDA Stock and Possible Near-Term Challenges
To some degree, it makes sense why investor sentiment has shifted in a big way when it comes to chip stocks. The industry is already seeing a post-pandemic slowdown when it comes to demand from end markets like gaming.
In hindsight, the market may have overestimated how long this level of growth would continue for names like AMD and NVDA stock. Along with this, not only is there the concern of slowing growth post-pandemic. The current top-of-mind issues could in theory mean big disappointment ahead when it comes to operating results.
High inflation and rising interest rates could lead to a recession. In turn, hurting demand for the company’s GPU offerings among key end users across the board. Yet while this may have justified a moderate pullback in price, did it justify a 50% drop?
Not so fast. Instead of correctly repricing Nvidia stock in line with near-term headwinds, investors have overreacted. They’ve pushed it to a price far too low given its long-term growth prospects. Areas like gaming could see a slowdown in demand. However, that’s not the case with one of its other main end user markets.
What Could Help Spark a Recovery
Per analyst forecasts for NVDA stock, revenue growth is expected to come in at 25.3% for this fiscal year (ending January 2023), and 16.7% next fiscal year. Earnings growth is expected to come in over this fiscal year and the next at 22.3% and 18.8%, respectively.
This level of growth may pale in comparison to the numbers reported in the two last fiscal years, but it may be enough to help Nvidia maintain its current valuation. At today’s prices, the stock trades for around 30.5x estimated earnings for this fiscal year. Better yet, demand in what’s increasingly becoming its larger end user segment could come in ahead of expectations.
As I hinted above, even as gaming growth slows down, demand remains strong with its data center segment. Last quarter, this segment saw year-over-year revenue growth of 83%. In fact, it had higher quarterly revenue from its data segment ($3.75 billion) than from its gaming segment ($3.62 billion).
This could help outweigh weakness in other areas, enabling it to continue reporting strong results. That’s not all. Two existing catalysts, currently on the back burner, may also extend its growth runway.
The Verdict on NVDA Stock
During its “hot stock” days, there was quite a bit of talk about Nvidia’s exposure to many fast-growing areas. For instance, self-driving vehicles, not to mention, the metaverse. There’s not much discussion about its efforts in these areas today. Even so, they are still on the table as long-term catalysts.
Nvidia stock earns a “B” rating in my Portfolio Grader. Its near-term performance may remain underwhelming. Still, this works in your favor, if you have a long time horizon. In the near-term, you have the opportunity to build up a position at a reasonable price.
Today’s uncertainties will clear up. Its data center segment could continue to benefit from robust demand. Coupled with its longer-term catalysts, there’s a strong chance it gets out of its slump. In turn, soaring back to higher prices. If you’re looking to add high-quality growth plays to your portfolio, consider NVDA stock one of them.
On the date of publication, Louis Navellier had long positions in AMD and NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. 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.