The Nvidia (NASDAQ: NVDA) share price is on the rack. The chipmaker, which only became the world’s first $5trn publicly traded company last month, fell 3% on Friday. It ended the week down 10%, part of a wider tech sell-off.
It’s all down to anxiety about a supposed artificial intelligence bubble, which many have warned is about to burst as valuations get stretched. Last week it deflated, as the eight largest AI stocks slumped by $1.2trn in a week. That’s the biggest sell-off since Donald Trump announced his ‘liberation day’ tariffs on 2 April. US mega-caps bounced back at speed after Trump paused tariffs a week later.
Tech stock panic spreads
Despite the dip, Nvidia shares are still up 36% year-to-date and a thunderous 1,192% over five years. A £10,000 investment five years ago would now be worth £129,200.
I bought in January, during a dip but still late in the day, and until recently I was sitting on a 60% gain. I’m still comfortably ahead, but now comes the decision — whether to add more.
I’m not selling. When I buy shares I do so with a long-term view. Short-term trading racks up charges, stresses investors and risks outsized losses. As a rule, I prefer buying shares when they’re slightly undervalued and out of favour but with a strong business case, then hold on for recovery (assuming it comes). It’s not a perfect strategy. That’s one reason I came to Nvidia late. I’m wary of momentum stocks, fearing they’ll run out of steam after I buy. Eventually, I couldn’t resist. FOMO (fear of missing out) got me.
Can the AI revolution last?
So the question is whether to top up my stake. Nvidia remains central to the AI revolution, designing chips that power data centres, autonomous cars, video games and virtual reality. Betting against big tech has been a losing play for the last decade. While old-school US stocks struggle, tech is booming.
Nvidia’s price-to-earnings ratio is 53.55. That’s based on the optimistic assumption that its earnings will almost treble by 2028. Any shortfall will be punished.
The real challenge is AI itself. Hyperscalers are spending hundreds of billions on development, with no guarantee of returns. Energy supply for data centres and continuous innovation are critical.
Consensus one-year forecasts suggest Nvidia shares could hit $234 in a year. That’s a near-25% increase from today. Of course, most of those forecasts will have been issued before the recent dip.
Out of 66 analysts, 53 rate Nvidia a Strong Buy, seven more say Buy. Just one suggests selling. Here’s my view.
Looking further ahead
History shows transformative tech rarely dies. It hits bumps and races down blind allies, but ultimately ploughs on. Like it or not, there’s no turning back on AI. That’s why I’d love to top up Nvidia at a lower valuation.
My main focus remains undervalued FTSE 100 stocks with decent dividend yields. I have exposure to US tech through passive trackers and my direct Nvidia holding. I think the long-term investment case still holds, but patience is key. If panic spreads and the share slides further, I’ll consider buying more. Buying the dips has been a winning tech stock strategy for a long time. Let’s see what next week brings.
