Thursday was a torrid day for investors in Nvidia (NASDAQ:NVDA). The share price fell nearly 8% yesterday, meaning the stock is down almost 55% in 2022. As Nvidia stock hits a 52-week low, does this represent a buying opportunity for me?
Technology crackdown
Nvidia is involved in many of the industries and technological trends that could shape the future. Its work in artificial intelligence (AI) and computer graphics are driving innovation in healthcare, transportation and even the metaverse.
So why is the stock plummeting? The US government’s crackdown on chip exports to China is behind yesterday’s plunge.
In an SEC filing on Wednesday evening, Nvidia said that it had been told to stop exporting two top computing chips used for AI and supercomputing work to China in an SEC filing on Wednesday evening. Tensions are bubbling between China and the US over Taiwan. Technology has become a focus in these escalations and the US has decided to block the sales of some AI chips to China. The US government fears that these chips could be used by the Chinese military to develop new technologies.
These geopolitical trade tensions will impact Nvidia and some of its competitors. While it’s impossible to predict the long-term effect, Nvidia predicts that there will be a $400m impact for this quarter alone.
Nvidia has growth opportunities beyond AI, but there’s no doubt that this is an important part of the business. The technology is still likely in its infancy and any breakthroughs could create lasting competitive advantages. That’s why the US government is treating the exporting of chips as a matter of national security.
Nvidia stock: bull vs bear
Given the $400m impact in this quarter alone, it’s easy to make a bear case so that’s where I’ll start. Not only has this crackdown sparked uncertainty, the macroeconomic conditions could create even more volatility. The company is battling inflation and facing a possible economic slowdown, which could weaken demand for chips.
The current valuation is dependent on future growth and it does not look like a bargain to me. Nvidia stock is valued at a price-to-earnings (P/E) ratio approaching 40 and a forward P/E of nearly 45.
This valuation is expensive yet probably reasonable. It is involved in exciting industries with immense growth opportunities. However, the last 12 months have been incredibly volatile for growth stocks in all sectors and markets. Huge swings in share prices could continue for a while yet.
However, it’s not all doom and gloom. From self-driving cars and supercomputers to transforming work and gaming in the metaverse, the long-term outlook of the semiconductor industry has a lot of promise.
I’m not rushing to buy Nvidia stock today as the news is still to develop and settle in. However, after losing half of its market value in less than a year, I see an opportunity to generate strong returns over the long term.
To reiterate, the next few months and even years could be bumpy, but over a 10-year period, strong businesses like Nvidia should be able to ride out the current economic and geopolitical storms.