This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
For much of the past two years, the S&P 500 and Nasdaq Composite were fueled to record levels thanks to a small collective of megacap artificial intelligence (AI) stocks. Known as the "Magnificent Seven," Microsoft, Apple, Amazon, Alphabet, Meta Platforms, Tesla, and Nvidia (NASDAQ: NVDA) have largely been a good group of shares to own for the last couple of years.
However, sentiment around these AI leaders has shifted significantly in 2025. As of this writing, each of the Magnificent Seven stocks has seen a negative return on the year. Nvidia's shares alone are down some 27% this year. Back in January, the chipmaker's market capitalization reached an all-time high of $3.7 trillion. Today, its valuation has cratered to $2.4 trillion.
After losing over $1 trillion in market cap, is there any hope left for Nvidia investors? I think the answer is a resounding "yes." Let's dig into what caused Nvidia stock to spiral, and explore what tailwinds could reignite some life back into the semiconductor darling.
What caused Nvidia stock to drop like a rock?
There are several factors that have influenced the turbulence in Nvidia stock so far this year.
For starters, the stock took a big hit in late January after a Chinese start-up called DeepSeek released an AI model similar to ChatGPT, but claimed that it built and trained its AI on older Nvidia chipsets. Seemingly overnight, investors went into a panic, wondering how demand for Nvidia's newest chip architectures would be impacted, given the DeepSeek claims.
Over the last two months, ongoing step by the White House to implement new tariff policies have caused more trepidation across the capital markets. Investors have naturally started wondering how other countries might react to tariffs, and how any retaliatory policies could affect trade, prices, shipping, and overall business operations.
These events have eventually morphed into one large, widespread tornado filled with fear. Given how much Nvidia stock has run up over the last two years, investors started taking gains and hoarding cash, given all the uncertainty over the broader macroeconomy and what specific business performances could look like going forward. Now what?
Why do I think Nvidia stock is poised to rebound?
I know this information might paint a dismal picture for Nvidia, but smart investors know that there is much more to the story, besides some geopolitical tensions and competing AI platforms from overseas.
First, some of Nvidia's largest customers include its Magnificent Seven cohorts. For example, cloud hyperscalers Alphabet, Amazon, and Microsoft all use Nvidia chips in their data centers. Moreover, leadership at Meta Platforms and Tesla have also specifically referenced their reliance on Nvidia's graphics processing units (GPU) on multiple occasions -- typically during earnings calls.
As we learned during Q4 and full-year 2024 earnings a few weeks ago, cloud hyperscalers are forecasting nearly $260 billion of capital expenditure (capex) spend this year, with Meta Platforms adding potentially up to another $65 billion on top of that sum.
On top of this, investors have finally gotten a taste of how Nvidia's newest GPU architecture, Blackwell, is performing. During the fourth quarter, Blackwell generated $11 billion in revenue -- outperforming management's expectations. Moreover, during Nvidia's annual GTC conference a few weeks ago, CEO Jensen Huang revealed successor product lineups to Blackwell, underscoring Nvidia's commitment to innovation and the speed at which the company is moving.
In my eyes, Nvidia's business might actually be in the strongest position it's been since the AI revolution started in late 2022. These trends showcase how robust demand is for AI infrastructure, an opportunity Nvidia should likely benefit from, given the successful results of the Blackwell launch and the company's plans to continue releasing even more superior technology for years to come.
Is now a good time to buy Nvidia stock?
Right now, Nvidia's forward price-to-earnings (P/E) ratio of just over 22 is the lowest it's been in a year.
NVDA PE Ratio (Forward) data by YCharts
In all honesty, I wouldn't be surprised if Nvidia shares continue to fall in the near term. With that said, I think it's clear that the negativity surrounding Nvidia has more to do with broader concerns around the economy and less about the company's actual performance.
Given the company's current trajectory and continued accelerated demand from its largest customers, I think Nvidia's actual business is in good shape. Sure, tariffs could put a dent in the company's cost structure and take a nominal toll on margins in the short term, but Nvidia's long-term picture remains intact.
I think now is a time to heed the advice of Warren Buffett by taking advantage of the fear in the markets and be a little greedy. Shares of Nvidia look dirt cheap right now, and I think in time, investors will begin to realize that the company's actual performance is still impressive -- despite some headaches in the broader market.
My prediction is that by the end of the year, much of the hoopla around tariffs and potential AI competition from overseas will subside, and Nvidia's financial performance will speak for itself. Hence, several months from now, I think Nvidia stock will experience some newfound excitement and rebound in epic fashion.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
