Is this my chance to buy Nvidia shares?

As Nvidia shares lose half a trillion in market value in a day, is this Stephen Wright’s chance to buy an unusually big dip?

| More on:

Image source: NVIDIA

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When it comes to buying shares, I aim to be greedy when others are fearful. And I don’t recall investors being as fearful about certain artificial intelligence (AI) stocks as they are right now.

Nvidia (NASDAQ:NVDA) is one example. The company’s position as the world’s leading GPU firm is under no obvious threat, so the stock falling almost 17% in a day is catching my eye.

What’s the problem?

Identifying the big winners in the AI revolution isn’t straightforward – especially for those of us who aren’t tech engineers. But Nvidia has been an obvious candidate even for the likes of me.

The idea is that large language models (LLMs) need the best chips in order to compete. And that has meant Nvidia’s GPUs, which has resulted in the firm’s sales growing 420% over the last five years.

The issue isn’t that another company has managed to start generating more powerful chips. It’s that LLMs might not actually need the latest and greatest hardware to reach the top. 

DeepSeek – an AI lab in China – just launched its own model that outperforms OpenAI from Microsoft and Gemini from Alphabet. And its AI Assistant is the most popular download on Apple’s App Store.

The details are complicated, but the bottom line is DeepSeek has found a way to achieve this without the most powerful GPUs. That could be trouble for Nvidia – and the stock is responding accordingly. 

If the most powerful hardware isn’t necessary for the best AI models, Nvidia’s pricing power is likely to be limited. And in that situation, the stock looks badly overpriced.

Fearful… but not that worried?

It’s worth keeping the falling share price in context. A drop of nearly 17% puts the Nvidia share price within 89% of where it was a week ago – and 95% above its 52-week low. 

In other words, the latest news might have made investors more fearful about the stock than they have been in a long time. But I don’t think the market is in panic mode by any means.

Based on estimates for 2025, the stock is trading at a forward price-to-earnings (P/E) ratio of 28. That’s not only its lowest level since 2020, it’s in line with the S&P 500 average.

There is, however, a catch. Earnings estimates for the next 12 months aren’t yet pricing in weaker demand based on the idea that LLMs might not need Nvidia’s most advanced GPUs.

I’m therefore viewing that P/E ratio with suspicion right now. If profit forecasts get cut, analyst price targets could come down, causing the Nvidia share price to fall further.

So I’m not in a rush to buy Nvidia shares for my portfolio at the moment. Despite the sudden drop, I think the current share price still represents positive expectations from investors.

What’s next?

My suspicion is the US views AI as a matter of national security. So I’m very alert to the possibility the next development is going to come sooner, rather than later.

Nvidia’s GPUs might be a key part of this, but DeepSeek’s revelation means nothing is guaranteed. So despite falling almost 17% in a day, the share price doesn’t yet offer me enough of a margin of safety.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Stephen Wright has positions in Apple. The Motley Fool UK has recommended Alphabet, Apple, Microsoft, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Time to buy Nvidia shares before fresh all-time highs?

Nvidia shares began 2025 at an all-time high before a big drop in the last week or two. Our writer…

Read more »

Investing Articles

A top FTSE 100 share to consider for a Stocks and Shares ISA starter portfolio!

While not without risk, a lump sum in this FTSE 100 trust could prove a great way for Stocks and…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

I asked ChatGPT to name the best 5 UK shares to build wealth over 50 – and here they are!

Harvey Jones is looking to build a balanced portfolio of UK shares to fund his final years, and asked ChatGPT…

Read more »

Investing Articles

£10k invested in Scottish Mortgage shares after the DeepSeek crash is now worth…

Harvey Jones thought his Scottish Mortgage shares were heading for a bumpy ride when DeepSeek emerged last month. Then he…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

1 ex-penny stock up nearly 400% in my Stocks and Shares ISA! 

This writer is starting to take notice of a small-cap stock that is 'up' significantly in his ISA portfolio over…

Read more »

Investing Articles

The FTSE 100 index hits new highs! But will Legal & General shares outperform it in 2025?

Legal & General's share price has rocketed almost 8% so far in 2025. Can it continue to outstrip the surging…

Read more »

Investing Articles

Up another 8% in a week! So what’s stopping me from buying IAG shares? 

Harvey Jones is desperate to add high-flying IAG shares to his portfolio before they climb even higher but there's a…

Read more »

Happy couple showing relief at news
Investing Articles

The Bank of England’s slashed its growth forecast but the FTSE 100 doesn’t seem to care!

On the day the UK’s central bank halved its forecast for growth in 2025, the FTSE 100 reached a record…

Read more »