The company has suffered from a recent sell-off, but maintains massive long-term potential.
Nvidia's (NVDA -0.03%) stock has dropped 13% over the past month. The company's share price has fallen alongside declines in fellow chip stocks like Advanced Micro Devices, ARM Holdings, Taiwan Semiconductor Manufacturing Company, and ASML Holding NV.
On July 17, these companies' stocks fell victim to reports that the Biden Administration was considering imposing more stringent sanctions on China's access to advanced chips. Then, a massive outage for cybersecurity firm CrowdStrike on July 19 caused mayhem worldwide, crashing countless systems and exasperating the tech market sell-off.
While falling stock prices can be concerning, they can also create attractive investment opportunities. A tumbling share price has boosted the value of Nvidia's shares, with its price-to-earnings (P/E) ratio declining 13% in 30 days. Meanwhile, the company maintains massive potential over the long term as it continues to profit from its dominant role in tech and artificial intelligence (AI).
So, here's why it's not too late to buy Nvidia stock in the second half of 2024.
The victim of a recent sell-off
The tech-heavy Nasdaq Composite index has dipped 4% since Monday, July 15, amid rising tensions between the U.S. and China. A Bloomberg report on Wednesday described a proposed measure called Foreign Direct Product Rule (FDPR), which would allow the U.S. to "impose controls on foreign-made products that use even the tiniest amount of American technology."
More stringent restrictions illustrate the increasingly strained relationship between the U.S. and China. Wall Street has grown concerned that the situation could disrupt the supply chain in the chip market, leading chip companies to eventually lose access to Taiwan Semiconductor Manufacturing Company's foundry services. As a result, companies like Nvidia, which outsources its manufacturing to TSMC, have seen their stock prices take a hit.
However, long-term-minded investors shouldn't be too worried, with domestic manufacturing options in the works. TSMC, Intel (INTC 1.55%), Samsung, and are building chip plants in the U.S., increasing the country's foundry capacity and lowering the market's reliance on the Greater China region and, more specifically, Taiwan.
The new facilities are expected to open before the end of the decade, with Intel's Ohio plant set to be operational between 2027 and 2028. Meanwhile, the company is opening factories in other overseas regions, including an $18 billion investment in a plant in Ireland.
As a result, Nvidia's business will likely be secure over the long term. The company's prominent role in tech and the chip market far outweighs recent geopolitical issues, making its stock an attractive option after a sell-off.
Nvidia is powering multiple industries with its hardware
Chip stocks have captivated Wall Street since the start of 2023, and for good reason. Sectors across tech increasingly require powerful hardware to take their products to the next level, making companies like Nvidia critical to the industry's future. And few chipmakers have achieved Nvidia's nearly unrivaled dominance.
The company emerged as the biggest threat in AI last year, achieving an estimated 70% to 90% market share in AI chips thanks to the success of its graphics processing units (GPUs). Virtually every major tech company has become a client of Nvidia, with its chips used by Amazon, Alphabet, Microsoft, Meta, and ChatGPT Developer OpenAI.
However, the company was a prominent figure long before the recent boom in AI. As a leading chipmaker, Nvidia's hardware powers dozens of industries. Its chips can be found running consumer products like laptops, custom-built PCs, cloud platforms, video game consoles, e-commerce logistics, and self-driving technology.
In fact, Nvidia is the exclusive supplier of chips to Nintendo's Switch console, the third-best-selling game console of all time. The partnership has catapulted Nvidia's chips into mainstream use, with 141 million units sold. Meanwhile, a sequel to the Nintendo Switch is expected to launch before the end of March 2025, which could offer Nvidia a boost in earnings.
Nvidia has growth catalysts throughout tech thanks to the high demand for its hardware, which will likely see its stock rise for decades. As a result, it's not too late to buy Nvidia's stock this year -- the stock could be a worthwhile investment after the recent price dip.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Alphabet, Amazon, CrowdStrike, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and Nintendo and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
