Nasdaq Correction: Is Now the Time to Buy the Dip on Nvidia?

The Nasdaq Composite (^IXIC) has entered correction territory, which means it is down at least 10% from its all-time highs. A key factor in this decline has been Nvidia (NVDA) stock, which has seen a drop of about 20% year to date, as of the latest update. Even though the chipmaker recently reported strong financial results, concerns about tariffs and indications of a possible recession in the U.S. have negatively impacted market sentiment.

This price correction could present a valuable opportunity for long-term investors interested in Nvidia shares. Let's explore three key reasons why this dip might be a great time to invest in Nvidia for the long haul.

1. Nvidia Leads in Artificial Intelligence Infrastructure

Nvidia holds an impressive 90% market share in graphics processing units (GPUs), making it the leading player among chip manufacturers that are essential for building artificial intelligence (AI) infrastructure. Originally intended to enhance graphics rendering for video games, Nvidia's GPUs are now pivotal in training large language models and processing AI tasks, thanks to their rapid processing capabilities.

The company’s CUDA (Compute Unified Device Architecture) platform has established a significant competitive advantage. Since its introduction in 2006, CUDA has enabled GPUs to be programmed for various tasks beyond their initial purposes. This has allowed developers to learn to use Nvidia’s software platform effectively.

In contrast, rival Advanced Micro Devices (AMD) only launched its ROCm (Radeon Open Compute) software platform a decade later, in 2016. Nvidia has also advanced its offerings through CUDA-X, a comprehensive software stack that includes libraries and tools tailored for accelerating applications, particularly in AI and high-performance computing.

Recent research by Semianalysis noted that AMD's newest GPUs were not effective for AI training immediately due to software issues, while Nvidia's chips performed well. This solidifies Nvidia's position as a leader in AI infrastructure development.

2. Growing Demand for AI Data Center Infrastructure

Despite a claim from Chinese AI firm DeepSeek about constructing an efficient AI model at a low cost, leading-edge AI development currently requires substantial computational power. This need drives companies to establish extensive AI chip clusters.

Recent advancements in AI models have shown that newer iterations require exponentially more GPU chips compared to their predecessors. For example, Meta Platform’s Llama 4 model required ten times the GPU capacity of Llama 3. Likewise, the xAI project, which is backed by Elon Musk, initially utilized 100,000 GPUs for its Grok 3 model before increasing this number to 200,000 GPUs.

Major cloud computing providers and tech companies are significantly investing in AI data centers. The three leading cloud service companies plan to collectively invest around $255 billion in AI data center construction this year to meet the growing demand.

Using infrastructure-as-a-service platforms, businesses have been customizing and developing their own AI models and applications. Meta, for instance, will invest up to $65 billion in capital expenditures in the current year, with a significant focus on enhancing its AI infrastructure. Additionally, a coalition led by OpenAI and SoftBank has committed to spending $500 billion over the next several years to boost AI data center development in the U.S. as part of Project Stargate.

3. Nvidia Stock is Priced Favorably

One compelling reason to consider investing in Nvidia is its current stock valuation, which remains attractive. The stock is trading at a forward price-to-earnings (P/E) ratio of 24 based on analysts’ estimates for 2025 and has a price/earnings-to-growth (PEG) ratio of below 0.5. Generally, a PEG ratio below 1 indicates that a stock may be undervalued, whereas growth stocks often see PEG ratios above 1.

It's important to note that Nvidia is not a software-as-a-service (SaaS) company that enjoys a consistent and predictable revenue stream, which means it won't achieve the same high valuation multiples as those companies. Nonetheless, its current market valuation seems reasonable, especially given that the AI sector is still in its early phases and that spending on AI infrastructure is expected to rise. Therefore, this recent decline in stock price could represent a solid long-term investment opportunity.

Nasdaq, Nvidia, AI