Why NVIDIA Stock Remains a Good Buy Despite a $5.5B Setback?

With the advent of artificial intelligence (AI), NVIDIA Corporation NVDA saw its shares climb northward in the last couple of years. However, the NVIDIA stock has faced volatility this year due to trade tensions and new chip export restrictions to China. So, should investors avoid or buy the NVIDIA stock now? Let’s delve in –  

Nvidia Faces New China Export Restrictions 

NVIDIA’s data center revenues may take a hit in the upcoming quarters after the U.S. government told the semiconductor behemoth that it would need a federal export license to sell its H20 chips to China. NVIDIA is not optimistic about getting the license soon and expects a $5.5 billion charge in its fiscal first quarter. After all, H20 chips are expected to account for 12% to 13% of NVIDIA’s data center revenues this month. 

Tightening exports is of concern to NVIDIA, but it’s not new to them. Earlier, the Biden administration prevented NVIDIA’s advanced chips from going to China to limit their AI capabilities. DeepSeek, a Chinese company, used H20 chips for a cost-effective chatbot.  NVIDIA, despite such roadblocks, showed positive results, and its long-term outlook remains positive. 

Reasons to Be Bullish on NVIDIA Stock 

Let’s admit, despite the H20 fiasco, the chip is less powerful than NVIDIA’s advanced chips and is in less demand. In reality, the demand for the new-generation cutting-edge Blackwell chips has surged, and their shipments are increasing day by day.  

But it’s not only the high demand for Blackwell chips but also the increasing popularity of the CUDA software platform among developers that is expected to improve NVIDIA’s quarterly performance. The Jensen Huang-led company enjoys a competitive advantage in the graphics processing units (GPUs) market, with more than 80% share. This wide moat will help the company sustain broader market vagaries (read more: 2 Wide Moat Semiconductor Stocks a Bargain Buy Now: ASML and NVDA). 

Big cloud computing companies like Alphabet Inc. GOOGL and Amazon.com, Inc. AMZN are now spending billions of dollars on AI data center infrastructure, which should benefit NVIDIA in the long run. Cloud computing companies are buying GPUs to enhance computing power for AI workloads. 

NVIDIA Stock to Buy Hand Over Fist 

Despite the initial disruptions from new export restrictions, NVIDIA’s long-term outlook is promising due to high demand for its latest chips, growing GPU acceptance, and increasing AI data center spending.  

NVIDIA, thus, remains an enticing buy with brokers increasing NVDA’s average short-term price target by 54.8% to $173.63 from the previous $112.20. The highest short-term price target is set at $220, indicating an upside of 96.1%.

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Moreover, buying the NVIDIA stock won’t burn a bigger hole in your wallet than its competitors. This is because NVIDIA’s forward price/earnings (P/E) ratio of 23.72 is lower than the Semiconductor - General industry’s 28.7X.

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Furthermore, NVIDIA’s 10.7% debt-to-equity ratio is lower than the industry’s average of 20.1%, which reduces investment risk. This positions NVIDIA as a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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