Nasdaq Stock Market Slip: Worth Buying Nvidia Shares at a 27% Discount from Peak?
Nvidia's Troubles and the 27% Plunge
Nvidia (NVDA), the tech giant renowned for AI chips and tech, has been a standout performer for years. However, its recent performance could use a boost. As of March 11, the stock dipped to $108.76, marking a 19% decline in 2025 and a 27.2% drop from its all-time high of $149.43, hit on Jan. 6.
While the S&P 500 and tech-centric Nasdaq Composite have also experienced a rough ride, with decreases of 5.3% and 9.7% respectively by March 11, Nvidia's tumble begs the question: Is this the opportune moment for a stock purchase?
Why Nvidia's Stock Tumbled
Before jumping into the valuation debate, it's crucial to grasp the primary factors causing Nvidia's woes. Here are three key factors:
- U.S. Government export restrictions concerns towards China
- Trump administration tariffs
- DeepSeek's AI model launch and fears of reduced spending on Nvidia's AI tech
These factors led to a 9.8% drop in Nvidia stock last week, though it's important to note that the overall market also experienced a tough week with the S&P 500 and Nasdaq losing 3.1% and 3.5%, respectively. The DeepSeek news triggered an 17% plunge in January.
The apprehension surrounding potential strengthened AI chip exports control to China was fueled by a Wall Street Journal article published on March 2. The article alleged that Chinese buyers were circumventing U.S. export controls on Nvidia's Blackwell chips, the company's most advanced AI chips for data centers, by shipping these systems via third parties.
The tariff-induced stock sell-off began on March 3 and persists. Some of the significant developments up until March 11 include:
- March 3: Trump announced increased tariffs of 25% on goods imported from Canada and Mexico, and existing Chinese tariffs would double from 10% to 20%.
- March 4: New U.S. tariffs were implemented, and both Canada and China retaliated with their own tariffs.
- March 6: The Trump administration introduced new tariff exemptions for certain products imported from Canada and Mexico.
As for DeepSeek, the January announcement that rocked Nvidia stock was its claim to have developed an open-source AI model at significantly lower costs than U.S. firms. This revelation sparked concerns about a potential decrease in spending on Nvidia's AI technology.
Is the Sell-off an Overreaction?
Yes, the stock sell-off can be considered an overreaction. With regard to DeepSeek, skepticism about several of its key claims has been expressed by market watchers. Moreover, there's no evidence pointing towards a significant slowdown in tech companies' purchases of Nvidia's technology.
While tariffs contribute to market uncertainties, their impact on Nvidia's business is unclear. Although there's a possibility that tariffs could affect the company, it's unlikely that they'd cause substantial harm. Nvidia's technology is in high demand, and even if the company were to increase prices to cover new tariffs, major customers would probably not scale back their orders. Nvidia's AI-enabling tech is indispensable to big tech firms in their eyes.
Regarding AI chip export restrictions, the future is uncertain. While Nvidia would lose some Chinese business in case of stricter controls, the loss would not be catastrophic. In the fiscal year 2025 (ended in January), Nvidia's Chinese sales accounted for 13.1% of its total revenue. This figure combines total sales to Chinese customers, not just AI-related sales to data centers.
Nvidia's Valuation
With a forward Price-to-Earnings (P/E) ratio of 24.2 (as of March 11), Nvidia is currently priced at 24.2 times its projected adjusted EPS growth over the next 12 months (fiscal 2026). It's essential to note that the earnings figure used in this calculation is an estimate, not an actual result. This means that Wall Street's estimates have a history of underestimating Nvidia's growth potential, causing past overstatements of the stock's valuation based on forward P/E ratios.
Despite the uncertain circumstances, Nvidia stock could be an attractive buy for long-term investors, given its strong growth potential and forward P/E ratio.
- In light of Nvidia's recent stock decline and the ongoing challenges such as U.S. government export concerns towards China, tariffs, and DeepSeek's AI model launch, the question arises: Is this the right time for investing in Nvidia?
- Analysts suggest that the stock sell-off could be an overreaction, as there are doubts about DeepSeek's key claims and no evidence of a significant slowdown in tech companies' spending on Nvidia's AI technology.
- Nvidia's P/E ratio stood at 24.2 as of March 11, indicating that the stock might be an appealing buy for long-term investors, considering its robust growth potential.
- Despite growing uncertainties, the future indications for Nvidia suggest that it could continue to hold its ground, especially when considering its vital role in providing AI-enabling technology to major tech firms.