This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
If investors had to choose just one company that exemplifies both the opportunities and risks associated with recent advances in artificial intelligence (AI), Nvidia (NASDAQ: NVDA) would be a logical choice. The company's graphics processing units (GPUs) have been the linchpin that powered the AI revolution and fueled Nvidia's atmospheric rise, as the stock gained more than 800% in just two years. However, it has since suffered a stark reversal of fortune, plunging 36% (as of this writing) and shedding more than $1.3 trillion from its market cap since earlier this year.
After a slump of this magnitude, is it finally time to buy the stock?
Greedy when others are fearful
Several factors have contributed to Nvidia's downfall in recent months. China's DeepSeek, a high-performance AI model, was created without the benefit of Nvidia's state-of-the-art GPUs. This marked the beginning of the stock's current slump, but it didn't stop there.
Last week, the Trump administration restricted the sale of Nvidia's H20 chips, which were developed specifically to meet the already stringent rules for exporting AI chips to China. This move caused Nvidia to take a $5.5 billion write-off. Some analysts believe this move was made to gain leverage in the ongoing trade war with China, but the move could backfire. Several reports suggest that Chinese chipmakers are boosting production of AI chips in response to the export ban.
However, the situation isn't nearly as dire as it might seem at first glance. Estimates suggest Nvidia's sales to China were roughly $17 billion or about 13% of its total sales for the fiscal year that ended in January. However, accelerating demand for cutting-edge AI processors will likely help Nvidia make up for any sales lost as a result of the export restrictions.
If you have doubts, consider this: Big Four accounting firm PwC estimates that AI could contribute as much as $15.7 trillion to the global economy by 2030. If Nvidia captures just a small portion of that opportunity, the loss of its sales to China will seem like a drop in the bucket. Furthermore, at just 21 times forward earnings, Nvidia stock is a relative bargain for long-term investors. While the stock could still have further to fall, I predict it will be much higher five years from now.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
