Graphics-processing unit (GPU) maker Nvidia (NVDA -10.01%) recently announced preliminary results for its upcoming second quarter of the 2023 fiscal year and the news wasn't good. It also won't help a stock that is down about 36.4% since the start of the year.

As bad as this news was, though, there is probably more pain to come for shareholders and those interested in the stock. And yet, despite these wounds to the tech giant, Nvidia has what it takes to recover and be a long-term winner. Let's take a look at what's going on and why Nvidia is looking a little bloodied right now.

It looks like there will be blood

Nvidia is the runaway market leader for PC discrete graphic cards, a type of graphics processing unit (GPU) that operates independently instead of being integrated into a computer's processor.

Semiconductor companies like Nvidia have traditionally been cyclical. They have periods of strong growth when demand is high for chips, followed by down periods when demand falls. Discrete GPUs are essential for heavy-load computing applications, and gaming has traditionally been Nvidia's most substantial market. More recently, new applications have been found for Nvidia's GPUs, like mining cryptocurrencies and powering data centers being developed as the backbone for the metaverse.

You can see this in Nvidia's revenue growth rates over the past five years. Revenue growth deteriorated in 2018-2019, but the past two years have been strong:

NVDA Revenue (Quarterly YoY Growth) Chart

NVDA Revenue (Quarterly YoY Growth) data by YCharts

However, the economy has cooled significantly over the past year. Cryptocurrencies are in a bear market, and high inflation is pinching consumers' wallets. Nvidia management confirmed that its business was struggling when it decided to release some preliminary results for the second quarter of its fiscal 2023 year and get ahead of the bad news it knew was coming.

How bad could it get?

In its first-quarter earnings release back in late May, Nvidia guided for $8.1 billion in revenue for Q2. The preliminary release says revenue for the quarter will come in at just $6.7 billion, missing the company's guidance by 17.3%. Nvidia will issue its full fiscal 2023 second-quarter earnings report on Wednesday, Aug. 24.

In the preliminary report, management commented that revenue for its gaming GPUs was softer than expected and was the primary reason for missing its guidance. What was alarming about this news is the speed that demand softened to cause such a guidance miss in such a short amount of time. It signals that we could be entering a downcycle in Nvidia's business.

As already noted, the share prices of Nvidia are down about 36% since the beginning of the year, but it seems there could still be some bloodletting for this stock. Part of the reason is that the stock's current price-to-earnings (P/E) ratio sits at nearly 50, still well above its decade median P/E of 34.

The stock could undercut its historical norms if growth continues to stall. You can see below that the stock's valuation fell to a P/E of less than 30 when the business last fell into a rut in 2018-2019:

NVDA PE Ratio Chart

NVDA PE Ratio data by YCharts

There's no way to know how far the stock will fall moving forward, so investors should at least be wary of jumping into the stock with both feet just because shares dipped.

Slow and steady wins the day

Long-term Nvidia investors shouldn't panic, even if Nvidia sees a few quarters of falling revenue. Business cycles happen, and few companies grow in a straight line. Nvidia's data center segment is thriving, and future technologies like artificial intelligence, the metaverse, autonomous vehicles, and supercomputing will all require the high-powered chips that Nvidia specializes in.

Investors can slowly accumulate shares over time using a dollar-cost averaging strategy. Making small buys over time will blend your average cost so that you don't go all in too early and become deeply underwater on your shares if you time it wrong.