AI-related growth prospects continue to propel Nvidia’s (NASDAQ:NVDA) stock to new highs. The market is bullish on NVDA, but some analysts are concerned about a potential reversal. In their minds, while much of NVDA’s strong run has been justified, investors have gone overboard.
The stock is almost certain to undergo a sharp price correction. Given the volatility of growth stocks, including “Magnificent Seven” stocks like this one, I agree that a price correction is well-within the realm of possibility. That doesn’t mean you need to exit, if you currently own NVDA. It also doesn’t mean potential buyers need to steer clear.
NVDA Stock and Correction Fears
Nvidia stock is up by more than threefold over the past twelve months. Shares have been on a heater, but it is erroneous to say that this extremely high level of price appreciation is due solely to speculative frenzy.
Although there are many stocks with supposed “AI potential,” it’s not all hope and hype with NVDA stock. Nvidia’s revenue and earnings per share have significantly increased due to the growing demand for generative AI-compatible chips.
Considering this high level of growth, it’s questionable whether the stock (at 48.8 times earnings) is even overvalued, especially given how earnings could rise by 64.6% during the upcoming fiscal year.
That said, I will agree with the more skeptical/cautious that the stock has indeed been moving very far, very fast recently.
Much like with shares in Nvidia’s key rival, Advanced Micro Devices (NASDAQ:AMD), it’s possible that investors are panic-buying NVDA out of FOMO. Again, that’s why I concede shares could experience some sort of reversal or correction.
First a Dip, Then a Rip?
While I’ll admit that the excitement could soon calm down, all bets are off for the degree at which NVDA stock may slide if the enthusiasm for AI stocks simmer down, and even high-quality plays in this space like this one retreat to lower price levels.
With NVDA trading at a lower valuation than AMD (which trades for 63.5 times earnings), and with current results more strongly driving valuation than with AMD, shares may have less downside risk in the event of an “AI stock correction.”
However, irrespective of whether Nvidia soon modestly or moderately dips, this could be the prelude, the calm before the storm, before its next big rip. As I argued earlier this month, AI chip demand is not slowing down.
Given inflation and interest rate trends, there’s a strong chance Nvidia’s non-AI business continues to bounce back as well.
This leaves Nvidia well-positioned to hit current earnings forecasts for this fiscal year (EPS of $20). If subsequent results/guidance further increases the likelihood NVDA meets or beats expectations, the stock could quickly snap back into action, climbing back to its high-water mark, then on to even higher prices.
The Verdict
I’ll make no bones about it. If you own NVDA today, or are planning to buy soon, don’t get scared out of a position if it experiences a 15%, 20%, or even a 25% price correction. In fact, such a sell-off could provide a prime opportunity to initiate or add to a position.
Another round of market turbulence could prove temporary. As trends remain favorable, and earnings growth comes in at an incredibly fast pace, a high double-digit gain for this stock during 2024 is well within reach.
Over a multi-year timeframe, Nvidia could double, or even triple, once again, as the AI chips trend goes on strong, and this company leverages its success in AI hardware with a big move into AI software. Despite what the naysayers are saying, NVDA stock remains a buy.
NVDA stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.