The artificial intelligence chip giant Nvidia (NVDA +0.07%) has struggled this year, with the stock down over 11%. That's despite strong quarterly results and forward guidance above Wall Street consensus estimates.
At a company conference earlier this year, Nvidia CEO Jensen Huang said he expects $1 trillion in sales of its current Blackwell platform and the soon-to-be-launched Vera Rubin platform between this year and 2027.
Image source: Nvidia.
Yet nothing has impressed the market. In fact, Nvidia's forward price-to-earnings (P/E) ratio has recently fallen to match that of the broader benchmark S&P 500 Index for the first time in over a decade.
Nvidia recently traded at slightly above 20 times forward earnings. That's despite growing revenue at 73% year over year, while net income surged 79%, which is impressive for any company, let alone one of its size.
Is this the buying opportunity of a lifetime?
What has stopped Nvidia?
In general, AI stocks have struggled, as investors have grown weary of the incredible investments by hyperscalers to fund the build-out of AI infrastructure. The "Magnificent Seven" are collectively on pace to spend close to $700 billion in capital expenditures this year, largely on AI infrastructure such as data centers.
NASDAQ: NVDA
Key Data Points
Now, Nvidia itself is not a big spender on capex, but it depends on this build-out because the company sells its chips and platforms to companies to put in their data centers, which help train large language models and run AI solutions.
The bears are worried that the hyperscalers cannot generate good returns at this intense level of spending, which is eventually poised to dry up as well. Investors have also been concerned about circular financing at Nvidia because the company invests in some of its major customers, such as OpenAI and Coreweave.
Still, Nvidia rarely misses earnings targets, so there's no real reason to doubt Huang's $1 trillion guidance. Huang also said it will soon restart chip sales to businesses in China, a part of the business that has been dead for several quarters, due to geopolitical issues, but historically was a material contributor to revenue.
Trading at a $4 trillion market cap, I wouldn't call this the buying opportunity of a lifetime, but it's likely the best opportunity shareholders have had to buy Nvidia stock in several years.
