Nvidia’s Stock Faces Turbulence: A Buying Opportunity or a Cause for Concern?

The well-known expression “reports of my death are greatly exaggerated,” inspired by Mark Twain, aptly describes Nvidia (NASDAQ: NVDA). Recently, the company’s stock plummeted over 20% due to a controversial claim from DeepSeek, leaving it more than 16% below its recent peak.

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NVDA data by YCharts

Is this a major warning sign for investors or a chance to buy the dip? Nvidia remains a leader in powering artificial intelligence (AI). Here are three compelling reasons to consider purchasing the stock now.

1. Overblown Demand Concerns

Nvidia’s primary product, its advanced graphics processing units (GPUs), plays a crucial role not only in gaming but predominantly in data centers and AI. Major tech firms like Meta Platforms (NASDAQ: META), Alphabet (NASDAQ: GOOGL), xAI founded by Elon Musk, and OpenAI, which developed ChatGPT, heavily rely on Nvidia GPUs for AI model training.

Training these models often necessitates thousands of GPUs. For example, Meta’s Llama 3.1 reportedly utilized 16,000 GPUs, while xAI’s Colossus data center requires 100,000 of them. A Chinese company, DeepSeek, claims to have developed a chatbot rivaling ChatGPT using only 2,000 Nvidia chips for a mere $6 million. This assertion caused panic among investors who speculated that it might reduce the GPU needs for major tech companies. However, the validity of DeepSeek’s claim remains under scrutiny, as extraordinary claims demand extraordinary proof.

Some industry experts suspect that DeepSeek may actually utilize 50,000 Nvidia GPUs, with the project costing around $500 million. The company’s claims might be intended to generate attention or serve geopolitical interests, as U.S. export controls limit chip sales to China.

In summary, it’s likely that major tech firms will continue investing billions in Nvidia’s robust GPUs.

2. Outstanding Financial Performance

Nvidia’s results from fiscal year 2024 (ending January 2024) illustrate its impressive performance. Sales surged 125% to $61 billion, with a non-GAAP operating income reaching $37 billion, yielding a remarkable 61% margin. These numbers grew even more robust through the first three quarters of fiscal 2025, as showcased below.

Image source: Nvidia.

The operating margin expanded to 67%, suggesting strong demand and that customers are willing to pay a premium for Nvidia products. Through the third quarter of fiscal 2025, net income reached $51 billion, a significant increase from $17 billion in the previous year. Additionally, free cash flow soared to $45 billion compared to $27 billion for all of fiscal 2024.

3. Attractive Valuation

Determining a definitive value for Nvidia is challenging, especially considering the uncertainty surrounding the duration of its phenomenal growth. Investment in AI and data centers is rapidly increasing, with forecasts indicating the AI market could reach $244 billion in 2025 and $827 billion by 2030, a trajectory that heavily relies on Nvidia’s GPUs.

While some investors previously considered Nvidia’s stock overvalued, the recent decline has opened a more favorable entry point. The forward price-to-earnings (P/E) ratio has decreased well below historical averages.

NVDA PE Ratio (Forward) data by YCharts

Similar declines in early 2023 and early 2024 were also viewed as opportune moments for long-term investors to buy.

Despite the noise around DeepSeek, the claims seem overhyped. Nvidia’s solid financial results and improving valuation indicate that it is far from being out of the race.

Should You Invest $1,000 in Nvidia Now?

Before considering an investment in Nvidia, it is essential to review:

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.