Technology stocks have finally caught a break recently after having been hammered by investors since the start of 2022. Although the Nasdaq Composite remains down 18.3% year to date, the tech barometer has gained 11.4% over the past month in light of better-than-expected inflation data for the month of July.
Still, many of big tech's finest businesses, such as Nvidia Corporation (NVDA +0.51%), remain notably in the red. The chipmaker's stock has plummeted 39% since the beginning of the year, which should catch the attention of long-term tech investors. With that in mind, is now the right time to pounce on the tech giant's stock? Let's examine its current situation to discover why or why not.
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Nvidia will face a bumpy road in the short run
Nvch is primarily known for designing and manufacturing graphics processing units (GPUs) for gaming, cryptocurrency mining, and a wide range of other business applications, recently announced preliminary second-quarter results that were weaker than expected. The company, which will report its full earnings on Aug. 24, noted in a press release that its second-quarter revenue will likely finish around $6.7 billion, compared to the $8.1 billion it was initially projecting. The tech behemoth linked the shortcoming to weaker gaming revenue, which it generates predominantly through the sale of its best-in-class GPUs.
NASDAQ: NVDA
Key Data Points
The downgraded revenue forecast for its gaming segment is likely connected to macroeconomic conditions like high inflation and rising interest rates, which have temporarily softened demand for its GPUs. As a result of management's adjusted guidance, Nvidia's gaming revenue, which made up roughly 46% of total sales last year, is expected to decline 30% year over year to $2.04 billion. Altogether, its newly guided total revenue forecast of $6.7 billion translates to just 3% growth from the same quarter a year ago.
At the moment, the tech giant pegs a price-to-earnings multiple of 51.0, which represents its lowest trading level since the initial March 2020 COVID-19 sell-off. To boot, it's also trading below its five-year mean price-to-earnings multiple of 59.0. Whenever a top-quality stock like Nvidia dips below its historical valuation levels, it's typically not a bad idea to give it a close look. While growth may be patchy for the foreseeable future, the long-term fundamental outlook of the company's business remains largely unchanged. Plus, Wall Street analysts still forecast the tech leader's top and bottom lines to grow 15.3% and 20.3% year over year for the full fiscal year, respectively. Those are still solid growth rates, so investors should think twice before overreacting to the fresh news.
But is the stock a good buy today?
Flaunting a 21% share of the GPU market, second only to Intel, Nvidia is poised to benefit from the sprouting industry. According to Allied Market Research, the global GPU market will be worth $201 billion by 2027, translating to a compound annual growth rate (CAGR) of 33.6% from 2021. While runaway inflation and rising interest rates may have temporarily lessened demand, these headwinds are only short-term in nature and should not impact your long-term investment thesis on Nvidia. Thus, the recent tieback in the tech giant's stock price has introduced a terrific buying opportunity to savvy investors.
