Nvidia (NASDAQ: NVDA) released its fiscal 2025 second-quarter results for the three months ended July 28 on August 28. Despite surpassing expectations with both its results and guidance, the stock fell by 18%.
Investors seem concerned about Nvidia’s forecast of 80% year-over-year revenue growth in the current quarter, amounting to $32.5 billion. Although this growth is significant, it is a decline from the 122% growth recorded in the previous quarter. Additionally, apprehensions regarding the sustainability of substantial investments in artificial intelligence (AI) technology are contributing to investor skepticism about Nvidia’s future prospects.
The sharp increase in the stock’s value throughout 2024 raises the question of whether investors should book profits, hold their positions until the bearish sentiment subsides, or capitalize on the dip to purchase more shares.
### Reasons to Buy Nvidia Stock
Nvidia possesses a robust competitive edge in its markets. The company holds an impressive market share of over 80% in the AI chip market, which has driven striking growth in recent quarters. Nvidia’s dominance in AI chips contributes to its data center revenue, which saw a year-over-year increase of 154% last quarter, reaching a record $26.3 billion.
Comparatively, Advanced Micro Devices (AMD) reported $2.8 billion in data center revenue for the same period, including server central processing unit (CPU) sales. AMD projects it will exceed $4.5 billion in AI GPU revenue for the year, indicating that Nvidia maintains a significant lead over its closest competitor in this segment.
Nvidia’s market position is fortified by the continued demand for its GPUs built on the Hopper architecture, even though next-generation Blackwell chips are slated for production next quarter. Nvidia’s data center revenue for the first half of the current fiscal year approaches $49 billion, suggesting the potential for nearly $100 billion in revenue from this segment by year-end. John Vinh of KeyBanc projects that Nvidia’s data center revenue could escalate to $200 billion next year with the introduction of Blackwell chips.
Though this forecast appears ambitious, Nvidia’s data center business is reportedly more than doubling each quarter, and the demand for Blackwell chips is expected to outpace supply well into the next fiscal year. Furthermore, Nvidia’s foundry partner is increasing capital expenditures and manufacturing capacity, potentially resulting in a substantial data center boost in 2026.
Consensus estimates predict Nvidia’s revenue will rise to $161 billion in fiscal 2026. This figure could be surpassed if the data center business continues its rapid growth, suggesting that upcoming quarterly results may exceed expectations. Consequently, buying Nvidia stock during the current dip could be a prudent move.
### Reasons to Hold Nvidia Stock
Despite Nvidia’s recent decline, the primary concern for investors might be the stock’s valuation. Nvidia is trading at a high 28 times sales, compared to the U.S. technology sector average of 7.8. Additionally, the company’s trailing price-to-earnings ratio stands at 50, above the sector average of 44.
Opportunistic investors may prefer to maintain their positions in anticipation of a lower entry point should the sell-off continue. However, Nvidia’s future earnings and revenue multiples are significantly lower than current trailing multiples, indicating potential growth. The company’s price/earnings-to-growth ratio (PEG ratio) is also well below 1, suggesting it may be undervalued given its growth prospects.
Thus, investors hesitant to buy more Nvidia stock now should consider acting soon to benefit from potential gains.
### Reasons to Sell Nvidia Stock
Nvidia’s recent sell-off might seem unjustified, given its potential for significant growth due to its strong position in the AI chip market and relative valuation. However, some investors might opt to sell now, aiming to repurchase at a lower price later.
While this strategy might appear advantageous initially, market timing is generally not advisable. Historically, long-term investments in solid companies have proven more profitable.
Therefore, there appears to be limited justification for selling Nvidia stock at present. Also, the cautious approach of waiting for a more attractive valuation might miss future gains. It may be wise for investors to consider buying Nvidia following the recent drop, as the long-term outlook remains strong.
### Investment Consideration
Before investing in Nvidia, it is important to note that The Motley Fool Stock Advisor analyst team has identified ten other stocks they believe are better investments currently. Nvidia did not make this list. Historically, recommendations from Stock Advisor have significantly outperformed the S&P 500.
### Disclosure
Harsh Chauhan holds no position in any of the stocks mentioned. The Motley Fool has positions in and recommends both Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
