Time to Bet on Nvidia? A Guide to Buying on the Dips.

Stock Market

The market’s strong rebound this year is driven by excitement over AI advancements, boosting major indexes. Nvidia (NASDAQ:NVDA) stock dropped 4.9%, Microsoft (NASDAQ:MSFT) fell 2.7%, and Alphabet (NASDAQ:GOOG) slipped 2.4%, partly due to credit rating agency Fitch downgrading the U.S. debt rating.

Quarterly results of another AI-focused firm fell short of expectations, contributing to the negative market sentiment.

This past week, NVDA stock is down in line with the overall market, but there are reasons to be optimistic about the outlook for this stock, and the overall market. 

If investors brush off these concerns, as Treasury Secretary Janet Yellen has suggested, perhaps this is a dip worth buying.

Nvidia wants to make semiconductors and software stacks optimized for AI, along with enhancing data transfer within data centers. The company has positioned itself as a leader in AI processing technology. With that said, let’s dive into whether now may be a good time to consider accumulating Nvidia on dips.

NVDA Fundamentals 

As of April 2023, NVIDIA held around $11.0 billion in debt, similar to the previous year. The latest balance sheet data reveals short-term liabilities of $7.26 billion and long-term liabilities of $12.7 billion. 

However, the company also had $15.3 billion in cash and $4.08 billion in receivables due within 12 months. 

While its liabilities exceed the combination of cash and receivables by $540.0 million, considering its size, NVIDIA appears to have a well-balanced liquidity position. Despite notable liabilities, the company maintains net cash and does not seem heavily burdened by debt.

Cathie Woods Sells NVDA Stock Holdings

While the positive remarks about Nvidia are appealing, there’s a catch. Financial markets are swift in pricing in such information, and by the time analysts tout Nvidia’s AI chip dominance, it’s already factored into the stock value. 

This rationale led Cathie Wood of ARK Investment Management to sell her entire NVDA stock position, specifically noting that her flagship fund no longer holds the stock.

It’s unexpected, as Wood usually invests in pricey tech stocks. However, she refuted the notion that she disregards valuations, explaining that high valuation prompted her action. 

“Nvidia is selling at a very high multiple of revenue right now,” Wood said.

With a trailing 12-month price-to-earnings ratio of 244.76x, it seems the stock already incorporates several years’ worth of earnings potential.

More NVDA News and Updates

Nvidia’s stock fell about 6% on Aug. 2 because of a broader market decline, briefly touching a buy point at 439.90. 

This created a chance for current investors to add shares from a three-week-tight pattern, with the buy range stretching to 461.90 as per IBD Leaderboard analysis. 

Nvidia’s earnings may more than double this fiscal year, propelled by strong chip sales in data centers and AI. 

The company is also broadening its presence in growth sectors like automated electric vehicles and cloud gaming. The metaverse and cryptocurrencies could additionally boost demand for Nvidia chips.

I’m bullish on Nvidia’s AI investments, like the $50 million deal with Recursion Pharmaceuticals for innovative drug discovery. However, remember that cloud dynamics change and Nvidia’s current valuation is high. Diversify your holdings.

Bottom line

Overall, Nvidia’s underlying business and exposure to AI are compelling for long-term investors. Yes, the near-term outlook for Nvidia and other high-growth stocks is murky. However, we’ve seen NVDA stock battle through periods of adversity, and come out the other side (usually higher).

Nvidia may not be a stock worth loading up on right now. But I think this is a company with strong long-term fundamentals that could look more attractive at lower levels. Thus, this is a stock I’m keeping on my watch list, and intend to consider on any 2022-style dips.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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