Nvidia Emerges as Key Opportunity Amid Market Turmoil

Stocks dubbed the “Magnificent Seven” led the market’s impressive gains last year as investors anticipated a significant artificial intelligence (AI) shift. This elite group includes Apple, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia (NASDAQ: NVDA), and Tesla. However, recent trends show a decline in investor interest in these stocks.

Concerns arose following President Trump’s announcement of import tariffs that could increase costs for both consumers and businesses in the U.S. The S&P 500 index fell by as much as 15% from the year’s beginning to its lowest point last month. While stocks across various industries faced challenges, those heavily reliant on international production were hit hardest, especially within the tech sector. Although electronics were temporarily exempt from tariffs, worry remained that any future duties could impede growth.

Nvidia: The Biggest Winner in AI

Surprisingly, the standout among last year’s top AI performers is Nvidia. Despite a staggering 800% surge over the past two years, valuation concerns have emerged. Nvidia’s rise can be attributed to its robust portfolio of AI products, positioning the company at the forefront of the AI race.

Specializing in graphics processing units (GPUs), Nvidia manufactures some of the most advanced AI chips, essential for significant AI applications. These high-performance GPUs play a key role in determining the success of AI projects for various leading tech companies, including fellow members of the Magnificent Seven.

Nvidia has expanded beyond GPUs, establishing an entire ecosystem of products tailored for AI customers. This includes industry-specific platforms for sectors such as healthcare and automotive, contributing to an impressive revenue of $130 billion in the most recent fiscal year.

However, concerns about potential tariffs and U.S. government restrictions affecting chip exports to China have dampened demand for Nvidia’s stock. As a result, the stock has seen a decline, now trading at 24 times forward earnings estimates. While it’s not the cheapest of the Magnificent Seven, it still presents a reasonable investment opportunity.

Sustainable Growth Rates and Valuation

Examining Nvidia’s sustainable growth rate sheds light on why it may be undervalued. This metric reflects the expected growth rate over time, assuming no significant changes in financial policy.

The data illustrates that Nvidia boasts the highest sustainable growth rate among its peers in the Magnificent Seven. Although Apple closely follows, its growth rate has shown slight declines, while Nvidia’s has continued to improve. Given Nvidia’s current valuation alongside this growth advantage, the stock appears particularly appealing.

While uncertainties surrounding import tariffs do exist, they are a concern for all Magnificent Seven companies. Consequently, Nvidia could still represent the best investment opportunity within this group.

Two More Reasons to Remain Positive

Two additional factors bolster optimism for Nvidia. First, the company recently announced a substantial investment in U.S. manufacturing, potentially reducing its exposure to import tariffs. Second, Nvidia’s commitment to continuous innovation, including annual updates to its GPUs, positions it favorably against competitors, likely driving revenue growth as the AI sector expands.

Overall, Nvidia’s market leadership and proactive strategies to mitigate tariff impacts strengthen the case for its continued growth. Given its current valuation combined with strong growth prospects, Nvidia stands out as the most promising bargain in the Magnificent Seven.

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