Nvidia stock: buy-the-dip opportunity or catch flying knife?
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$NVIDIA Corp(NVDA)$ have risen from less than $500 at the start of the year to a 52-week high of $974, and are up more than 200% over the past 12 months, but the stock recently fell back nearly 11% into correction territory.
Nvidia is now seeing a pullback. Is this a buy-the-dip opportunity or catching a falling knife?
Fundamentally, Nvidia's sales and earnings growth are on fire. But for a growth stock that's tripled in a year, the valuation premium is no joke, and the risk is rising.
Buy-the-dip opportunity?
Well, Nvidia's stock has been on a tear, but bulls will argue that the company's revenue and profits are growing even faster. Nvidia's fourth-quarter revenue jumped 265% year-over-year, and earnings per share soared 765%! The main driver? Their datacenter business, which saw revenue surge 409% in the quarter.
The bullish argument is simple: this growth justifies the stock's current valuation, with a P/E ratio of around 71. Nvidia's lead in AI chips and innovation is unmatched, ensuring continued high growth. Analysts even expect an average earnings growth rate of 38% over the next five years.
Pullback anytime!
The big risk with Nvidia's long-term growth trajectory is its unpredictability. Who knows how fierce the competition in AI chips will get? If the pressure mounts, pricing power weakens, and the market supply and demand balance out, profits could decline faster than sales.
Another risk is Nvidia's customer concentration. They mentioned in their 2024 10-K report that one customer accounted for about 19% of their total revenue that year.
Compare that to 2022 and 2023, where no single customer contributed more than 10%. If this big customer starts making their own chips or goes with a competitor, it could hit Nvidia's sales trend hard.
So, if the market senses a slowdown in sales growth or demand weakening, the stock will start sliding. Nvidia shares are now ultra-sensitive to bad news. Any hint of weakening demand for their products, and the stock will tumble.
Based on this, analysts might say the best strategy is to wait for the stock to fall further, not to wait for the risk to materialize.
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