Looking back on 2022, one thing that no doubt stands out for every investor is the punishment that has been inflicted on each of the major U.S. stock market indexes. At various points, all three have fallen into bear-market territory, and as of the close of trading Tuesday, only the Dow Jones Industrial Average was out of it. The worst performer of the three by a mile, however, is the Nasdaq Composite, which is still down by around 33% year to date.

It's important to remember that down markets are natural parts of the investing cycle. The market's periodic plunges offer the absolute best opportunity for investors to buy quality businesses at a discount. Furthermore, investors with long-term outlooks can take heart in the knowledge that every previous U.S. stock market downturn has eventually been followed by a bull market

One bear-market bargain that's staring investors right in the face is semiconductor standout Nvidia (NVDA -3.22%). For those who step back and take a broader view, it should be clear that investors should be buying this stock like there's no tomorrow.

Person playing a mobile game on their phone in a dimly lit room.

Image source: Getty Images.

Lost its spark?

This year hasn't been a pleasant one for Nvidia shareholders, and it's easy to see why some short-sighted investors might have lost faith in it. For its fiscal 2023 third quarter (which ended Oct. 30), revenue declined 17% year over year to $5.9 billion. At the same time, earnings per share plunged 72% to $0.27.

The sales slump was due in part to falling demand for the high-end graphics processing units (GPUs) used by gamers. Nvidia's gaming segment revenue cratered 51% year over year, hit by the one-two punch of high inflation and rising interest rates. Macroeconomic conditions have taken a toll on consumers' budgets, causing many gamers to hold off on getting the latest upgrades.

Fortunately, Nvidia's data center business fared far better. Revenue there grew 31% year over year, fueled by broad-based demand from cloud computing operators and consumer internet companies.

Still, given the abysmal top- and bottom-line numbers, it's no wonder some investors were alarmed. Fear drove the stock lower, and it currently sits around 52% below the peak it hit about a year ago.

However, in looking too closely, investors may be missing the forest for the trees.

A moment in time

It wasn't all that long ago that investors were singing Nvidia's praises -- and rightly so. For its fiscal 2022 fourth quarter (which ended Jan. 30), the company reported record quarterly revenue of $7.6 billion, up 53% year over year. As a result, Nvidia's earnings per share soared by 103% to a record $1.18. This capped off a record fiscal year during which sales grew by 61% to $26.9 billion.

Those results were fueled by record quarterly and fiscal year revenue from its three biggest segments -- gaming, data center, and professional visualization. Does that sound like a company in trouble? 

The data suggests that Nvidia, like many other technology companies, is suffering from the temporary effects of the downturn. History suggests that once the macroeconomic headwinds subside, high-performing businesses -- like Nvidia -- will lead the market's charge, regaining lost ground and climbing to new heights.

Growth drivers a-plenty

If you think Nvidia's growth phase is over, think again.

Gamers may be temporarily forgoing the latest state-of-the-art processors for their gaming systems, but historically, when they have done so, the result is pent-up demand. When the economic pendulum swings the other way, they'll come out in force to upgrade their GPUs.

Then there's the data center segment, which provides complex processors used for cloud computing, data centers, and artificial intelligence. As recently as fiscal 2023's first quarter, data center revenue grew 83% year over year, but several factors have weighed on the segment's performance recently. In addition to the aforementioned macroeconomic headwinds, the U.S. government recently imposed restrictions on the sale of all cutting-edge artificial intelligence processors to customers in China. Nvidia has since introduced a processor that is acceptable for export under those new trade restrictions, which should reinvigorate its sales into that market.

This all suggests that Nvidia is well-positioned for a stunning rebound once the economy regains its footing.

Let's talk about price

It's important to note that Nvidia is the undisputed industry leader in its niche, and its stock is not now, nor has it ever been, cheap by traditional valuation metrics. It currently trades for 14 times sales when experts generally agree that a reasonable price-to-sales ratio for a company is between 1 and 2.

However, when companies have strong histories of strong growth and equally robust prospects, investors have often found them to be deserving of premium valuations -- and Nvidia is a prime example.

The available evidence suggests that macroeconomic headwinds are merely putting a temporary drag on Nvidia's progress. This too shall pass. And when it does, investors will wish they'd bought more Nvidia stock while it was down.