Nvidia (NVDA 1.56%) stock has been a fantastic medium- and long-term winner and even a winner over the last year. But shares of the artificial intelligence (AI) chip and technology leader have been having a tough time recently. Nvidia stock closed at $108.76 on Tuesday, March 11, which represents a decline of 19% in 2025 and a drop of 27.2% from its all-time closing high of $149.43, reached on Jan. 6 of this year.
For context, the S&P 500 and the tech-heavy Nasdaq Composite indexes are down 5.3% and 9.7%, respectively, in 2025 through March 11. Moreover, the S&P 500 is 9.3% lower than its all-time closing high, set on Feb. 19. And the Nasdaq is 13.7% off its all-time closing high, reached on Dec. 16 of last year.
Nvidia stock's recent sizable pullback begs the question: Does the stock's current price look like an attractive buying opportunity?
NASDAQ: NVDA
Key Data Points
Why Nvidia stock is 27% off its all-time closing high
Before we get into the topic of valuation, it's important to understand the main reasons Nvidia stock has been struggling. There are three main reasons: concerns the U.S. government could enact additional AI chip export restrictions to China, Trump administration tariffs, and concerns about AI spending that arose from Chinese start-up DeepSeek's launch of its R-1 AI model.
The first two factors caused Nvidia stock to fall 9.8% last week, although the overall market also had a very bad week, with the S&P 500 and Nasdaq indexes down 3.1% and 3.5%, respectively. The DeepSeek news resulted in Nvidia stock plunging 17% in January.
The fear about the potential for additional export controls on AI chips was stoked by an article in The Wall Street Journal published on Sunday, March 2, that alleged "Chinese buyers are circumventing U.S. export controls" on Nvidia's new Blackwell chips -- its most advanced AI chips for data centers -- by routing systems containing the chips through third parties.
The tariff-fueled stock sell-off began on Monday, March 3, and has continued. There has been much action on this front, but the top happenings (not including threats that didn't materialize) through March 11 include:
- March 3 -- President Trump said that on March 4, 25% tariffs on goods imported from Canada and Mexico would start, and that the tariffs on Chinese products, set at 10% in February, would double to 20%.
- March 4 -- The new U.S. tariffs began, and Canada and China responded with retaliatory tariffs.
- March 6 -- The Trump administration gave new tariff exemptions to some products being imported from Canada and Mexico.
As to DeepSeek, its announcement in late January that torpedoed Nvidia stock was that it had trained an open-source AI model for much less money than U.S. companies have spent training their models. This ignited concerns about a potential slowdown of spending on Nvidia's AI tech.
Is the Nvidia stock sell-off overdone?
Yes, I think the Nvidia stock sell-off is overdone. As to DeepSeek, many market watchers have expressed skepticism about some of its key claims. Moreover, there are no indications that the big tech companies plan to slow their purchases of Nvidia's technology.
As to tariffs, the market hates uncertainty, so it makes sense that the U.S. government's back-and-forth actions on tariffs are hurting stocks, Nvidia included. That said, it's an unknown how much tariffs could affect Nvidia's business. But I don't think they will hurt it materially. The company's tech -- specifically its new Blackwell chips along with its networking products -- is in incredibly high demand. Even if Nvidia has to increase some prices to cover new tariffs on components, it seems very unlikely its customers -- at least its major ones -- will dial back on their purchases. Nvidia's Ai-enabling tech is widely considered by big tech companies as essential.
Whether the U.S. will further beef up controls on AI chip exports to China is anyone's guess. To be sure, Nvidia would lose some more business in China, but it would not be a catastrophic loss. For context, in fiscal year 2025 (ended in late January), Nvidia's sales to China accounted for 13.1% of its total revenue, according to its 10-K filing with the Securities & Exchange Commission (SEC). Two caveats: Nvidia's revenue by geographic area is based upon billing location of the customer, not shipping location. And the 13.1% figure includes sales of all products billed to Chinese customers, not just AI-related data center sales.
Nvidia stock's valuation
Data by YCharts.
The above chart shows Nvidia stock's forward price-to-earnings (P/E) ratio over the last few years. Its current forward P/E is 24.2, which means that the stock is priced at 24.2 times Nvidia's projected (by Wall Street) adjusted earnings per share (EPS) growth over the next 12 months (fiscal 2026).
For forward P/E ratios, it's very important to keep in mind that one metric in the equation -- earnings (or EPS, to be exact) -- is based on a projection or estimate (usually Wall Street's), not an actual result.
This is an important distinction because Wall Street analysts have consistently -- and usually significantly -- underestimated Nvidia's earnings growth potential since I have been closely following the stock, which is about eight years. This means that for many years, Nvidia stock's forward P/E ratio has been overstated. In other words, the stock's valuation based on forward P/E ratios has proven (in retrospect) to be consistently too high.
Data by YCharts.
The above chart shows Wall Street's consensus estimates for Nvidia's average annual earnings growth over the long term (five years).
Currently, analysts expect the company to grow earnings at an average annual rate of 32.8% over the next five years. This represents strong growth. But keeping in mind Wall Street's trend of underestimating Nvidia's growth potential, this figure has a good chance of being higher, in my opinion.
However, even if the 32.8% figure turns out to be accurate, Nvidia stock would be attractively valued given its forward P/E of 24.2.
So, yes, Nvidia stock is a good buy for long-term-focused investors.
