To The Moon

Nvidia: Too Much Fear, Strong Buy

‌$NVIDIA(NVDA)$  ‌

Summary

Nvidia's recent selloff is driven by macroeconomic panic, not fundamentals; the company's robust AI-driven growth remains intact despite market fears.

Nvidia's valuation is now highly attractive, trading at a mere 20x forward earnings, a premium justified by its superior profitability and growth metrics.

The ongoing demand for AI and data center infrastructure ensures Nvidia's continued growth, with recent viral AI trends underscoring this resilience.

Investors should view the current market sentiment as a buying opportunity; Nvidia's long-term prospects remain strong, making it a prudent investment.

 As the market grapples with what could become the worst three day stretch since the October 1987 crash, prudent long-term investors rightfully see a clear opportunity presented here. Despite being the darling stock of the AI bull run, NVIDIA Corporation (NASDAQ:NVDA) (TSX:NVDA:CA) has given up its gains from 2025 and is quickly falling back to where it was trading a year ago.

To call this selloff unwarranted seems a bit too lenient. It's a full-blown macro-driven panic for a company that will remain largely unaffected by global trade dynamics. Nvidia's core segment, data center infrastructure, does sell internationally manufactured products (that are subject to tariffs), but the company's margin profile gives plenty of flexibility in pricing. Not to mention that Nvidia isn't selling directly to consumers (who will be hit the hardest), it's selling to the world's richest companies that are obsessed with the potential of AI. Companies that have enormous cash piles and multi-year time horizons. This past weekend, Meta Platforms (META) released new models, showing that the industry isn't grinding to a halt because of macro fears.

Just a few short days ago, we saw why hyperscaler demand for compute will remain strong. OpenAI, creator of ChatGPT, launched a new image model and started a new viral trend of Studio Ghibli style photos. "Viral" may be an understatement, as these photos began littering the far reaches of the internet. It was a mega viral trend in just a few days. Eventually, OpenAI CEO Sam Altman said they are experiencing "biblical demand".

In a later post, he shared some concrete figures:

the chatgpt launch 26 months ago was one of the craziest viral moments i'd ever seen, and we added one million users in five days.

we added one million users in the last hour.

He later posted "working as fast we can do really get stuff humming; if anyone has GPU capacity in 100k chunks we can get asap please call!"

There is nothing bearish about this. Even two years into the proliferation of AI, both consumer demand and adoption are still accelerating. Model performance is improving, which increases compute intensity along with it. As model usage and compute intensity increase, Nvidia experiences a double-whammy effect in GPU demand.

This is a far cry from the DeepSeek (DEEPSEEK) panic from just a few months ago, which rattled AI stocks and sent them spiraling lower. Yet, the CEO of the most widely used consumer AI is publicly calling for capacity additions in the hundreds of thousands of GPUs. This rhetoric flies directly in the face of the recent report from Microsoft (MSFT) that the company will be slowing its rate of data center expansions. While GPU demand still looks extremely resilient, Nvidia's stock price is telling an entirely different story.

Amidst this backdrop, which is going entirely ignored by the market, Nvidia stock has been cratering since President Trump's tariff frenzy. Despite an insane 1500% increase in net income over the past three years driven by AI data center demand, the stock is now up only 382% over that time. The company's forward earnings multiple is up only 32% and has been cratering recently. The market is sending a clear message that less growth is being priced into the stock despite company guidance, analyst expectations, and comments from industry executives suggesting the exact opposite of that.

Valuation Insanity

Opportunities like this are quite rare. Nvidia stock is now trading at a 20x forward non-GAAP earnings multiple. This is over 50% below the stock's five-year average, and a mere 15% above the semiconductor sector average. Nvidia deserves a premium multiple for obvious reasons, but to put some numbers to it: the company's gross margin of 75% is nearly 50% higher than the sector average and its 55% net margin is a jaw-dropping 1,281% above the sector average.

You are paying a menial premium to the sector average for a much, much more profitable company. Both Nvidia's gross and net margin have also been improving in the wake of strong data center infrastructure demand, which is the company's highest margin segment. The company is the market leader in the hottest chip sector as of late.

Nvidia's 114% YoY sales growth stands at a ridiculous 2,105% higher than sector average, while forward sales growth expectations of 60% are 800% above sector average. These numbers are just ridiculous. There is no reason, from a fundamental basis, that Nvidia should be getting taken out to slaughter like it is. Any prudent long-term investor that has been waiting for an opportunity to accumulate Nvidia, this is your chance.

On the other hand, the company has increased its Capex aggressively as it now pursues a 1-year product delivery cadence. CEO Jensen Huang made the switch from a 2-year cadence to meet the insatiable demand for performant compute by AI hyperscalers. The Hopper architecture and H100 GPUs were behind the meteoric rise from 2023-2024, and the company worked to scale its Blackwell platform through the back half of 2024. Meanwhile, management is already talking about the Rubin platform and has public plans for future platforms. Each successive generation getting more performant and further extended Nvidia's lead.

In short, Nvidia is getting further ahead of competitors technologically while the demand backdrop remains extremely robust. If OpenAI's recent surge in usage is any indication, Nvidia is set to continue its rapid pace of growth. Tariffs won't have any meaningful impact on the demand for leading edge AI hardware.

Import tariffs on Taiwan could certainly cause some increase in the price of chip imports, but as long as consumers demand AI products, cloud providers will continue expanding capacity. Could tariffs have a sizable impact on consumer brands like NIKE (NKE) or Ford (F)? Certainly. But Nvidia? Why would there be any impact?

Even in the case of a full-blown recession, are consumers less likely to use AI chatbots? Or image gen models? Will developers have less need for the GitHub Copilot coding assistant because cheap Chinese imports got a bit more expensive?

Wouldn't the existence of a more efficient mechanism like AI actually benefit from a recession, as companies look to drive efficiencies? As late investor Charlie Munger used to say, "invert... always invert".

Anyone selling Nvidia or panicking about the selloff ought to ask themselves just what impact tariffs will have on an AI chipmaker. I see absolutely no reason for fear to this extent.

Investor Takeaway

Overall, the recent selloff in Nvidia stock is the result of broken sentiment in the market. After the post-election euphoria, investors quickly embraced the reality that the Trump administration won't be strictly good for stocks. The administration's recent tariff policy is a stark reversal of nearly 50 years of free trade ideology, and the increased uncertainty is rattling stocks. This is the exact type of selloff that investors look for while stocks are running too hot, yet while we are in the midst of the pain it can be very scary to put more money on the table. Those that are brave enough to step up to bat will be rewarded over time. Trade dynamics could impact short-to-medium term GDP forecasts, but the Fed will respond in kind to any sort of real economic pain that warrants it. Markets don't fall forever. Simply stay the course, accumulate stock in good companies, and you will be rewarded over time.