Shares of NVIDIA (NASDAQ:NVDA) have been in free-fall mode ever since its latest round of results came out. The company's revenue increased "just" 21% annually last quarter and net income grew "only" 47%. The performance was slightly off what Wall Street was expecting, but it was the company's guidance that really sparked investor pessimism.

The graphics specialist expects its fourth-quarter revenue to drop 7% as compared to the prior-year period. Analysts and investors were originally looking for a 17% jump. The market has taken a dim view of this expected slowdown in NVIDIA's business and investors have been quick to press the panic button. The stock is down about 20% since reporting earnings. However, the bears seem to be missing the point. NVIDIA is not a short-term play and it won't be long before its heyday is back again. Here's why.

Young man covering his eyes with a hand.

Image source: Getty Images.

Short-term worries...

PC gaming is NVIDIA's biggest business, as it supplies just over 55% of total revenue. That's why any slowdown in this segment is bound to have a major impact on the company's performance. Now, the PC gaming business had grown by leaps and bounds over the past few quarters thanks to one significant catalyst: demand from cryptocurrency miners.

Massive demand for graphics cards from the cryptocurrency mining community created a shortfall of these chips. As a result, graphics processing unit (GPU) prices went through the roof and graphics card manufacturers made hay while the sun shone. In fact, NVIDIA was reportedly getting 4.5% of its revenue from cryptocurrency, but the impact of price rises was much bigger, as some of NVIDIA's GPUs were retailing for at least double the original price.

So once the mining craze started waning and alternative chips came into the market, it was only a matter of time before NVIDIA lost this catalyst. Miners are even reportedly dumping their GPUs into the market at low prices, creating a surplus of these chips. Not surprisingly, NVIDIA CFO Colette Kress blamed excess channel inventory for the weak gaming performance, stating in Q3 commentary in mid-November, "Gaming revenue was short of our expectations, and our fourth quarter outlook is impacted by excess channel inventory of midrange Pascal products. We believe this is a near-term issue that will be corrected in one to two quarters, and remain confident in our competitive position and market opportunities."

So does it make sense to abandon NVIDIA due to headwinds that seem likely to last just a quarter or two? A closer look at the catalysts that the company is sitting on will make it clear why investors with a short-term view could miss out on major long-term gains.

...will give way to long-term gains

The video gaming business will be critical to NVIDIA's comeback. The CFO's comment gives an indication that demand for midrange NVIDIA cards has been weak following the cryptocurrency fall-off, so it will ship fewer units of those graphics cards this quarter so that the channel inventory reaches normal levels. In simpler words, NVIDIA will give its channel partners a couple of quarters to move the existing Pascal inventory.

Once that happens, the company will be in a position to introduce midrange graphics cards based on the new Turing architecture. NVIDIA has already launched three high-end 20-series Turing GPUs -- RTX 2080 Ti, RTX 2080, and RTX 2070 -- which carry retail prices of $999, $699, and $499, respectively. However, NVIDIA's midrange graphics cards are still based on the legacy Pascal architecture that came out more than two years ago, though that could change soon.

Fool.com contributor Ashraf Eassa pointed out in a recent article that NVIDIA CEO Jensen Huang is looking to "bring Turing deeper into the mainstream" so that the new architecture reaches "as many gamers as possible." On the other hand, the company's top-of-the-line GPUs seem to be selling well, as the older Pascal-based "high-end cards have largely sold through ahead of RTX."

In all, NVIDIA will have an entirely new lineup of GPUs on offer once the midrange cards are out. More importantly, the company's resellers will be able to absorb the same into their sales channels as the inventory glut of older cards goes away. This, in turn, will open up a huge opportunity for NVIDIA by pushing the company into a solid GPU upgrade cycle.

As it stands, 30% of NVIDIA's installed base is using GPUs based on the Pascal architecture. Since Pascal was the previous-generation architecture, it is likely that the majority of the company's consumers are using even older cards. But those users will have to upgrade to more powerful GPUs, as games are becoming more graphic-intensive and older cards tend to lose their edge over time.

So it won't be surprising to see the new Turing GPUs sparking a new upgrade cycle that will work in NVIDIA's favor, thanks mainly to new technologies like ray-tracing, which is supposed to make games look even more real than they already do. As such, NVIDIA investors can expect the company to regain its video gaming mojo once again.

A great time to buy

Now is probably one of the best times to get into NVIDIA stock, as it is trading at its lowest price-to-earnings (P/E) ratio in a year.

NVDA PE Ratio (TTM) Chart

NVDA PE Ratio (TTM) data by YCharts.

The company's earnings have increased at a solid pace in the past year, and it should be able to sustain that momentum once the video gaming segment normalizes in a couple of quarters. That, along with the impressive growth that NVIDIA is clocking in other businesses such as data centers, makes the stock an attractive bet today.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.