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Is Nvidia Stock a buy it now?

End of August, Nvidia (NVDA -2.08%) released results for its fiscal second quarter (ending July 31), and they weren’t great. The company’s growth has slowed considerably, and its orientation projects will continue. As with many companies, the difficult economic environment is weighing on this major chipmaker in the short term, causing volatility in the company’s finances.

That said, there are plenty of reasons to be optimistic about the company. The long-term opportunity for Nvidia looks bright as semiconductors grow in popularity and the company continues to find success in industries with higher potential. Shares are down almost 49% since the start of the year. Here’s why it looks like a deal.

Image source: Getty Images.

Nvidia’s bad quarter of an hour

The second quarter earnings results were a significant change from Nvidia’s previous quarters. Total revenue rose just 3% year-over-year in the second quarter to $6.7 billion. This also represents a 19% decline sequentially. Comparatively, Nvidia has consistently grown revenue above 40% year over year since the start of 2020.

The company’s games segment was the main driver of this disappointing performance. Nvidia’s gaming business saw revenue decline 33% year-over-year to $2.04 billion in the second quarter. Most of the decline is due to macroeconomic headwinds that are putting pressure on consumer demand for its gaming graphics processing units (GPUs).

Third-quarter forecasts were also bleak. The company expects to generate approximately $5.9 billion in revenue in the quarter, down 17% from the prior year period. This will likely be due to sequential declines in its gaming and professional viewing business. On the bright side, however, two business segments – data centers and automotive – are expected to post sequential increases.

Nvidia released preliminary guidance for the second quarter earlier in August, so this performance came as no surprise. The bigger concern, however, is that it’s not an industry-wide problem. Advanced micro-systems (NASDAQ: AMD), one of Nvidia’s competitors, saw a 70% increase in year-over-year revenue in its second quarter, highlighted by a 32% increase in gaming revenue over the same period. period. This could signal that Nvidia is losing market share in the gaming space and even in the chip industry.

With this slowdown in growth, Nvidia’s valuation becomes slightly more concerning. The stock isn’t cheap at 49 times earnings, and while that may be down from its 2020 and 2021 levels, it’s above the valuation it had for most of 2013 at 2017, plus most of 2019.

What metrics really matter

That said, Nvidia remains the dominant player in the chip space, especially when it comes to gaming GPUs. Nvidia’s GeForce gaming GPUs are among the most popular GPUs on the market, accounting for all 15 GPUs the most popular on the Steam video game platform. In the data center market, 72% of the world’s fastest 500 supercomputers are powered by Nvidia.

It’s also important to recognize that Nvidia’s gaming business may not be the primary driver of its long-term success. The company is targeting a $1 trillion opportunity, and games are only 10% of that. Comparatively, the data center systems and automotive segments account for 60% of this potential.

On these fronts, Nvidia continued to gain ground in the second quarter. Data center revenue soared 61% year-over-year to $3.81 billion, while automotive revenue jumped 45% in the same period to $220 millions of dollars. Although still small, management believes its automotive business could become the billion dollar company’s next business.

Finally, Nvidia remained profitable. The company generated net income of $656 million in the second quarter, and although this was a sharp drop from the $1.6 billion profit recorded in the year-ago quarter , this is a profit margin of almost 10%. Additionally, Nvidia generated $837 million in free cash flow in the second quarter. She can use this money to invest in innovation to create the best products, helping her to capitalize on her long-term lucrative prospects.

Why Nvidia Stock Is A Buy Now

The company faces short-term pressures, which is concerning. The fact that rivals don’t see the same stress as Nvidia is another reason to be cautious. That said, long-term investors willing to hold, even during short-term turbulence, could still see healthy returns.

Nvidia has a proven track record of dominance and benefits from its leadership. Ensuring that it persists over the course of several years will be key, and investors will be able to see this through the expansion of turnover. The short term will be volatile, but long term investors who can see through the clouds could benefit from buying a small position in Nvidia today.