Nvidia (NVDA 2.43%) stock has rallied hard in 2023 on the back of a turnaround in the company's fortunes. It's up 180% so far, driven mainly by the huge demand for its graphics cards, which are being used for training artificial intelligence (AI) models.

At one point this year share prices of Nvidia had more than tripled in value, but they are in pullback mode of late. The stock is down 11% in the past month, even though there has been no company-specific development that should have impacted its rally negatively. It looks like Morgan Stanley's thesis that the high-flying run in AI stocks is nearing an end and the "bubble" is likely to burst has led investors to press the sell button of late.

Is this latest pullback an opportunity for investors to buy Nvidia stock, especially considering the potential acceleration in the company's growth and the long-term prospects of the AI market? Let's find out.

Nvidia stock remains expensive despite its pullback

Nvidia's latest decline has made the stock relatively cheap compared to its previous prices, as the following chart shows.

NVDA PS Ratio Chart

NVDA PS Ratio data by YCharts

However, the price-to-sales ratio of 39 is still very expensive when we consider that the S&P 500 index has a sales multiple of 2.5. What's more, the semiconductor bellwether trades at a whopping 212 times trailing earnings, which is substantially higher than the S&P 500's average earnings multiple of 20. So even though Nvidia stock has pulled back in recent weeks, it remains richly valued.

But then, investors willing to buy a growth stock that's capable of winning big from the adoption of AI may want to take advantage of the dip and buy more shares of Nvidia. That's because the company's forward earnings multiple of 55 points toward a massive jump in its bottom line. Nvidia ended fiscal 2023 with earnings of $3.34 per share. The following chart should give an idea of how fast analysts are expecting that figure to increase in the current fiscal year and beyond.

NVDA EPS Estimates for Current Fiscal Year Chart

NVDA EPS Estimates for Current Fiscal Year data by YCharts

So Nvidia seems capable of justifying its rich valuation by delivering eye-popping growth, both in the short and the long term. What's more, the company is set to release its fiscal 2024 second-quarter results next week, and it wouldn't be surprising to see those results crush Wall Street's expectations because of reasons discussed in the next section. If that's indeed the case, Nvidia stock could get a nice shot in the arm, which gives growth-oriented investors all the more reason to take advantage of the stock's slide.

The company is riding a massive catalyst

Nvidia management anticipates fiscal Q2 revenue of $11 billion, which would be a 64% increase over the year-ago period. Analysts anticipate the company's quarterly earnings will quadruple to $2.06 per share from $0.51 per share in the year-ago period. The biggest reason why Nvidia could hit, or even exceed, these estimates is because of its huge share of the market for AI chips, a segment that's growing at a breath-taking pace.

The company reportedly controls over 80% of the AI chip market, as per third-party estimates. Its chips are being used by key players in the generative AI space, such as Alphabet and Microsoft-backed OpenAI, to train their large language models (LLMs). Market research firm TrendForce estimates that the global demand for AI servers could spike 40% in 2023, leading to a 46% jump in sales of AI chips this year.

Even better, TrendForce estimates that shipments of AI servers could increase at a compound annual growth rate of 22% through 2026. All this indicates that Nvidia's AI chips are likely to enjoy solid volume growth in 2023 and beyond. Throw in the fact that the company is enjoying impressive pricing power in this space, and it is easy to see why its earnings are expected to increase by a big margin.

More specifically, Nvidia's A100 data center graphics cards, which have been used for training the likes of ChatGPT and Stable Diffusion, reportedly cost $10,000 a unit. The successor to that chip, the H100, is said to be 2-2.5x more expensive. Given that these H100 chips are already in terrific demand from multiple companies in the AI race, Nvidia seems on track to deliver the red-hot growth in its revenue and earnings that analysts expect from it.

The anticipated acceleration in Nvidia's growth is going to bring down the company's high sales multiple as well, which is evident from the following chart.

NVDA PS Ratio Chart

NVDA PS Ratio data by YCharts

So a closer look at the bigger picture makes it clear that the recent pullback in Nvidia stock is likely to be temporary. That's why investors would do well to look past the company's valuation and capitalize on Nvidia's recent decline to accumulate more shares since it could regain its mojo next week.