Should You Buy Nvidia While It's Below $150?

The earlier part of the year wasn't easy for market superstar Nvidia (NASDAQ: NVDA). The stock slumped for a few reasons -- from worries about U.S. export controls on artificial intelligence (AI) chips for the Chinese market and a U.S. plan to set tariffs on imports, to concerns about technology spending. Each of these areas represents a risk for the leading AI chip designer, and that kept the stock trading well below $150. In fact, at its lowest, Nvidia slipped to less than $100 earlier in the year.

But, in recent weeks, the stock has rebounded, erasing losses for the year and showing signs of renewed momentum -- and it's now just a few dollars away from $150. Though the export control issue remains, the other headwinds have eased. Technology companies in recent earnings reports say they continue to pour investment into AI, a good sign for Nvidia. As for the tariffs, President Donald Trump has signed initial agreements with the U.K. and China that offer investors optimism the duties may not dramatically impact corporate earnings.

Considering all of this, should you get in on Nvidia while it's below $150?

Image source: Getty Images.

Nvidia's crucial decision

Nvidia soared into the spotlight in recent years thanks to one wise move: the decision to focus on the AI market before everyone was talking about AI. Nvidia's graphics processing units (GPUs) originally served the gaming market, but more than a decade ago, the company saw the potential of AI and shifted focus. From that point on, "every chip that we made was focused on artificial intelligence," CEO Jensen Huang told CNBC in a 2023 interview.

This has been a winning bet for Nvidia because in recent years, data center revenue -- which encompasses AI products and services -- has skyrocketed. In the latest fiscal year, revenue surged in the triple digits to a record $130 billion. But Nvidia isn't only growing revenue. The company also has significantly increased net income thanks to its high profitability on sales -- gross margin has surpassed 70% in recent quarters, and Nvidia aims for that to continue. (In the most recent quarter, Nvidia booked a charge for lost sales in China linked to export restrictions, pushing gross margin to about 60% -- but excluding this, the margin figure once again surpassed 70%.)

Speaking of China, this is one area that investors have worried about, since the region did account for 13% of sales as recently as last year. But it's important to keep in mind that Nvidia generates the lion's share of its revenue from U.S. customers, so even though the China situation may weigh on growth, it's unlikely to considerably slow down this AI giant. Last year, Nvidia brought in more than $61 billion in revenue from the U.S., and demand continues to grow as more and more customers seek computing power for AI inference -- an area of expertise for Nvidia's new Blackwell architecture and chip.

Nvidia vs. AMD

Rivals, of course, also represent a headwind. For example, Advanced Micro Devices recently launched MI350, a family of chips that aims to challenge Nvidia's Blackwell. But even with a high-performing GPU, it will be difficult to unseat Nvidia, especially since this market leader innovates on an annual basis -- this makes it particularly tough for a competitor to make a significant mark on Nvidia's market share.

And, considering demand ahead, there's likely plenty of room for Nvidia and a competitor like AMD to each generate major growth in this market. Today, the AI infrastructure buildout continues in a big way, and at the same time, new phases of AI growth -- such as the use of AI agents to apply AI to real-world problems -- are just beginning. Nvidia has wisely built an entire portfolio of AI products and services so that it can benefit from every stage of AI development and use.

All of this means that, even though Nvidia has delivered double-digit growth in recent times, this growth story is likely to continue well into the future.

Should you buy Nvidia?

Should you buy Nvidia while it's below $150? Even if you buy Nvidia once it passes that level, if you hold on for the long term, you could be setting yourself up for significant gains. So, you don't have to rush to get in on the stock right this second.

But Nvidia makes a compelling buy now considering its current valuation -- trading at 33 times forward earnings estimates, down from more than 50 earlier in the year. While Nvidia is trading around these levels -- and under $150 -- it makes an excellent addition to your AI portfolio.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.