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It has been a challenging month for big tech stocks , including the biggest, Nvidia ( NVDA -9.26% ) . The world's most valuable company has seen its stock price plummet about 15% since Oct. 6, down to $203 per share as of Nov. 4. With the artificial intelligence (AI) chip maker set to release third-quarter earnings on Nov. 17, is Nvidia stock a buy at a discount?
Image source: Getty Images. Why Nvidia stock is sputtering Nvidia is the leading provider of graphics processing unit (GPU) chips for data centers and AI computing with a market share of about 75% to 80%. But Nvidia stock , which has averaged a 65% annualized return over the past three years, has sputtered over the past year.
It is up just 9% year to date and over the last 12 months it is up just 2%, trading at $203 per share. Its struggles mainly stem from continuing concerns over capital expenditures on AI infrastructure by hyperscalers. Will it deliver ROI, or will it just be a drain on earnings and cash flows?
Nvidia is one of the major beneficiaries of that spending, so if these hyperscalers scale back for any reason, might the pullback hurt Nvidia? NVDA Nvidia $181.60 -$18.53 (-9.26%) NASDAQ · As of 4:00 PM ET 11/05/26 Also, Nvidia stock tends to move in tandem with the broader tech sector, which has been trending lower over the past month over these concerns, among others, like high valuations. But there are other reasons for Nvidia's sluggishness.
Some analysts and investors have expressed concern over its so-called "circular financing," with Nvidia investing in companies to have them become its customers. In addition, its market share, though still high, has dropped from a high of 87% in 2024. Some are also worried that its share could erode further with more competitors, including hyperscalers themselves, making their own chips.
Too cheap to ignore Nvidia has also projected its gross margin to decrease in Q3 to 71% to 72%, down from 75% in Q2. This is due to price increases for its memory components. But the company expects a rebound in fiscal 2028.
Furthermore, the Nov. 3 election brought Democratic control of the House and Senate, and that brings greater uncertainties around the landscape for AI and data center development. So, with Nvidia's Q3 earnings just two weeks away on Nov. 17, is Nvidia stock a buy? The fact remains, Nvidia continues to generate huge revenue.
In the last quarter, revenue rose 106% year over year to $96.2 billion while AI data center revenue surged 117% to $89 billion. Revenue is anticipated to hit $108 billion in Q3, which would be up 131% from $46.7 billion in Q3 the previous year. Further, spending on AI by the five hyperscalers is expected to increase to $1.3 trillion in 2027, up from $800 billion in 2026.
This is due to a backlog for cloud computing that is over $2 trillion. The recent sell-off has brought Nvidia stock down, and it's trading at just 25 times earnings and 13 times forward earnings. Any opportunity to get shares of Nvidia at its current low valuation is hard to pass up.
Source: The Motley Fool
