AI Stock Sell-Off: The Bargain Investors Should Consider Before February 26

The recent sell-off in artificial intelligence (AI) stocks, triggered by innovations from DeepSeek and its generative AI model, was short-lived. However, several stocks have not yet returned to their previous highs. One notable example is Nvidia (NASDAQ: NVDA), a leading company known for providing the computing power essential for training various AI models.

Currently, Nvidia's stock is more than 10% below its peak in 2025, though it experienced a drop of over 20% during the peak of the sell-off. This slight decrease in price presents a solid buying opportunity, especially as many believe the stock is positioned to climb significantly after February 26.

Why February 26 Matters

On February 26, Nvidia is set to release its earnings report for the fourth quarter of the fiscal year 2025, concluding around January 31. This particular earnings report has become a major event, as investors are eager to see if the company can maintain its impressive growth trajectory. Nvidia's management projects revenue of $37.5 billion for Q4, which would indicate a year-over-year growth rate of 70%. Conversely, Wall Street analysts, on average, predict an even higher growth of 73%.

Nvidia has a history of exceeding expectations. In the third quarter, the company forecasted revenue of $32.5 billion but achieved $35.1 billion. Similarly, in Q2, it projected $28 billion, only to generate $30 billion. Given the significant investments made in AI over the recent quarter, it's reasonable to expect Nvidia to surpass the $37.5 billion target they have set.

The strength of Nvidia's business stems from its industry-leading graphics processing units (GPUs) and software solutions. GPUs are particularly efficient for AI tasks because they can perform multiple calculations simultaneously, significantly increasing computing power. This capability is further enhanced when thousands of GPUs are connected in a system.

While 2023 and 2024 saw substantial investments in AI hardware, the year 2025 is anticipated to involve even more extensive spending. Major corporations are pledging substantial parts of their 2025 capital expenditures to AI hardware. For instance, Meta Platforms plans to invest between $60 billion and $65 billion this year, while Alphabet is looking at $75 billion in spending.

Nvidia's Valuation Compared to Other Tech Giants

Despite the promising outlook for 2025, Nvidia's stock appears to be undervalued compared to other big tech companies.

Merging growth potentials with valuation, Nvidia's price-to-earnings (P/E) ratio stands at 52 times trailing earnings and 30 times forward earnings, indicating it is attractively priced given Wall Street's expectation of 52% revenue growth for fiscal year 2026. In comparison, Nvidia's stock is cheaper than that of Apple and Microsoft based on forward earnings.

If Nvidia can sustain any level of growth following 2025, it seems to be an incredible bargain at these price levels. I am optimistic that Nvidia will report strong results for Q4, likely surpassing expectations. Considering the spending plans of its major clients this year compared to last, 2025 looks to be an exceptional year for Nvidia. It wouldn't be surprising to see the stock reach new all-time highs after the earnings report, so investors should consider taking advantage of the current lower price before it rebounds.

Disclaimer: Please note that the information included is for educational purposes only and not financial advice.

AI, Stocks, Earnings