It's been a wild couple of weeks for Nvidia (NASDAQ: NVDA). Shares of the artificial intelligence (AI) chip leader have moved by 5% in seemingly every session as investors struggle to value the dominant data center GPU maker.
Nvidia shares soared since the start of 2023 as its hardware is fueling the generative AI boom. Now there are legitimate questions about the economy's strength, the potential influence of AI, and how quickly Nvidia can grow.
Consequently, the stock has fallen 23% since the Nasdaq Composite peaked a month ago. However, one analyst sees the sell-off as a buying opportunity.
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New Street Research calls Nvidia a buy
Last week, New Street Research upgraded its rating on Nvidia from neutral in response to the sell-off. The research firm noted the stock had fallen 26% from its June peak, underperforming peers that are also competing in data center AI.
It sees the sell-off as a buying opportunity and gave the AI stock a price target of $120, implying upside potential of 15%.
Is Nvidia stock a buy?
Nvidia shares have pulled back as the AI rally became overheated, but there's a good argument that the stock is oversold. The brief scare over a potential economic recession seems to have passed for now. Nvidia's momentum remains strong, though the company may be experiencing a delay in its new Blackwell platform.
The latest update from Taiwan Semiconductor Corporation, the world's biggest chip manufacturer, showed July revenue that increased 45% from a year ago and 24% from June, a sign that the last month of Nvidia's second quarter was strong in the semiconductor industry and for AI chips.
Nvidia will report second-quarter earnings at the month's end and looks set to deliver another round of strong growth. After the recent pullback, the stock looks more reasonable at a forward price-to-earnings ratio of 40.
If market sentiment improves and Nvidia's second-quarter numbers are strong, the stock could be significantly higher by the month's end. Over the longer term, the stock should continue to outperform if it can retain its AI leadership.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
