Tech Sell-Off: 1 Nasdaq Stock Drops 61% to Buy Before It Starts to Surge – The Motley Fool | Jewelry Dukan

Technology stocks have taken a hit this year as investors dumped high-growth companies with equally high valuations. This phenomenon has been compounded by rising interest rates, 40 years of high inflation and ongoing economic uncertainty. These factors have the Nasdaq Composite into bear market territory, with the widely followed index down around 23% from its November high of last year.

As much as investors dislike the never-ending volatility and paper losses that such markets bring, the tech sell-off has created some compelling opportunities for investors. Perhaps one of the best examples of this is NVIDIA (NVDA -0.84%). The company, which supplies graphics processing units (GPUs) used in games, cloud computing, data centers, and more, has seen its stock plummet more than 61% as of this writing, despite its history of robust growth.

Can Nvidia weather the headwinds that have dogged its stock so far this year? Let’s look at the big picture for clues.

Shall we play a game?

Like many tech stocks, Nvidia has already tumbled as some investors “throw the baby out with the bath water,” so to speak. Things got even worse last month when the semiconductor specialist released results for its second fiscal quarter (ended July 31). far worse than expected. Revenue of $6.7 billion rose 3% year over year, dragged down by weakness in the flagship gaming segment, which posted a 33% year-over-year decline in revenue as consumers curbed spending on the high -End processors held back by Nvidia.

It’s important to take a step back or miss the wood for the trees. Nvidia continues to dominate the discrete desktop GPU market with an 80% share in Q2, even stealing additional market share from its peers. This suggests that Nvidia’s gaming segment will recover once the economy regains its footing.

head in the clouds?

Even as Nvidia’s gaming segment suffered, its data center segment, which includes processors for cloud computing, data centers, and artificial intelligence (AI), continued robust growth. Segment revenue rose to $3.81 billion, up 61% year over year and 1% sequentially — even in the face of macroeconomic headwinds.

Nvidia is the leading provider of processors for cloud computing and works with all major cloud providers. This contains Amazon web services (AWS), alphabet‘s Google Cloud, Microsoft azure as well Alibaba Cloud, baidu cloud and Tencent Cloud, among many others.

That’s not to say Nvidia is immune to the challenges facing the broader economy. However, digital transformation is happening and cloud computing has become more of a necessity than a luxury for many businesses. Storing data in the cloud is cost-effective, improves developer operations, is more secure, and helps businesses scale and innovate, making it a critical enabler for businesses looking to compete. Additionally, it is estimated that the cloud computing market will surpass $480 billion in 2022, up 18% year-on-year, and grow to more than $1.7 trillion by 2029, which is one compound annual growth rate (CAGR) of 19.9%. As one of the key components in cloud computing, Nvidia is well positioned to capitalize on this ongoing secular trend.

There are placeholders…

While gaming and cloud computing make up the lion’s share of Nvidia’s revenue, the company has additional opportunities that are largely untapped. Cloud gaming, which allows gamers to participate in popular games without buying expensive hardware, is just beginning. Nvidia has also developed dedicated processors for the professional visualization market, helping designers, developers, engineers, data scientists, and architects create new 3D tools and content.

While some of the initial hype has died down, self-driving cars and trucks still have it potential to change the world. Nvidia has partnered with a true who’s who in autonomous driving, collaborating with more than 120 car and truck manufacturers, robotaxi services and Tier 1 automotive suppliers, as well as simulation, mapping, sensor and software companies . This puts Nvidia right at the crossroads of this revolutionary technology once it reaches critical mass.

Finally, there is the company’s great and growing opportunity. In fiscal 2022 (ending Jan. 30), Nvidia generated full-year revenue of $26.9 billion, but that pales in comparison to its total addressable market, which management estimates at more than $1 trillion.

What the future brings

A review of the available evidence suggests that the weakness hitting Nvidia’s business — and its stock — is the result of prevailing economic headwinds. That means Nvidia will likely come back once the economy is on a better footing.

That’s not to say the stock couldn’t fall further — it certainly could. It’s also worth noting that Nvidia doesn’t come cheap when it comes to traditional valuation metrics. Even after the recent shellac, the stock still trades at 43 times earnings. While that’s nearly its lowest level in years, it’s still well above the Nasdaq’s price-to-earnings ratio of 24. However, given the company’s history of innovation, industry-leading position, and tremendous opportunity, I’d argue that the stock is up to date price a bargain.

Given what we know, investors should buy Nvidia stock now before it skyrockets.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet (A shares), Amazon, Baidu, Microsoft, Nvidia and Tencent Holdings. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Baidu, Microsoft, Nvidia, and Tencent Holdings. The Motley Fool has a disclosure policy.

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