In comparison to last year, growth stocks are struggling in 2022. This is due to the challenging macroeconomic environment, with global inflation soaring and interest rates rising as a result. This has led to the Nasdaq, which contains many growth stocks, sinking around 15% over the past year. And several companies have been unfairly punished. I believe that Nvidia (NASDAQ: NVDA) now looks too cheap and is a great buy for me on the dip.
Recent trends in the Nvidia share price
The share price has performed excellently over the past few years. Indeed, over the past five, it has risen nearly 400%, mainly due to the company seeing consistent revenue and profit growth. In the past year, the stock has also managed to rise 8%, meaning that it has continued to outperform the Nasdaq index. But the past six months have been far less pretty, with the technology firm losing half of its value. I feel this has created a great time to buy on the dip.
For one, the company’s recent trading update showed significant strength. Revenues were able to climb 46% year-on-year, reaching $8.29bn. Excluding the acquisition termination charge resulting from the company’s failed acquisition of Arm, net income also climbed 49% year-on-year to $3.4bn.
It was also revealed that the business is preparing for the release of multiple new products, which are expected to “greatly advance AI, graphics, Omniverse, self-driving cars and robotics”. As these technological advancements remain in their infancy, Nvidia is likely to have a major role to play in the future. This is great news for the company’s long-term prospects.
My concerns
Like many other growth stocks, there are several issues facing Nvidia right now. For example, its guidance for the next quarter was significantly poorer than many expected, and revenue was expected to decline to around $8.1bn. This was due to estimated reductions of around $500m related to the invasion by Russia of Ukraine and lockdowns within China. However, I believe that these are short-term worries.
What am I doing with this growth stock now?
Although I’ve always appreciated the quality of Nvidia, I haven’t bought due to its high valuation. However, after its recent dip, it looks far more attractive. Indeed, based on its recent results, it has a price-to-earnings ratio of just over 30. For a company growing at the same rate as Nvidia, with such high profit margins, this doesn’t seem too high to me.
The company has also recently extended its share repurchase programme, allowing it to buy back up to $15bn of its shares through to December 2023. This demonstrates management belief that the Nvidia share price is overly cheap. It should also help boost metrics such as earnings per share, which would make the firm even more attractively valued.
Therefore, after its recent dip, I think now is a great time to buy Nvidia. I may add some to my own portfolio over the next few weeks.
