Key Points
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Investors dumped semiconductor stocks after last week’s midterm Congressional elections, because new data center projects will now face more scrutiny.
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Nvidia sells the world’s most powerful data center chips for artificial intelligence (AI) workloads, and its stock has plummeted by 24% from its recent peak.
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Nvidia will report its latest quarterly operating results on Nov. 17, which will give investors a valuable update on the state of AI spending.
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Nvidia (NASDAQ: NVDA) supplies the most powerful data center graphics processing units (GPUs) in the world, which are the primary chips used to develop and run artificial intelligence (AI) models. Its stock set a fresh record high of $239.24 last month, but it has since declined by 24% (as of the market close on Nov. 5).
Investors are concerned the AI infrastructure boom could lose momentum following last week’s midterm elections in the U.S., as newly elected Democratic officials in several states have pledged to take a more cautious approach to data centre development and approvals. But investors will get some much needed clarity on the state of AI spending after the stock market closes on Nov. 17, when Nvidia releases its operating results for its fiscal 2027 third quarter (ended Oct. 31).
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I think Nvidia is likely to tell investors that demand for GPUs continues to exceed supply, which could spark a recovery in its stock, especially given its attractive valuation. Read on.
Jensen Huang recently provided some blockbuster sales guidance
Nvidia recently started shipping its new Vera Rubin data center systems, which include the Rubin GPU, the Vera central processing unit (CPU), and a series of upgraded networking components. It can deliver up to 30 times more performance in certain workloads compared to the equivalent Blackwell Ultra GPU system, which is Nvidia’s previous flagship platform.
Moreover, Vera Rubin can reduce inference token costs by a whopping 97%. Inference tokens are the text, images, or computer code a model produces in response to a prompt, so Vera Rubin could make deploying AI software significantly more affordable. This might lead to an increase in AI adoption, while making data center operators more profitable, thus potentially spurring even more demand for chips.
In May, Nvidia chief executive Jensen Huang said every frontier AI company planned to adopt Vera Rubin at launch, which wasn’t the case for Blackwell Ultra, so these new systems are likely to be a much bigger commercial success. At a summit in Scotland during September, Huang expanded on his comments, telling the media that Nvidia could sell twice as many chips next year compared to this year.
Nvidia doesn’t disclose exactly how many chips it sells annually, but it’s forecasting overall revenue growth of 70% during its next fiscal year. Wall Street is estimating the company will generate around $411 billion in revenue during its current 2027 fiscal year (according to Yahoo! Finance), which means it could bring in almost $700 billion next year.
But all of those forecasts were issued prior to the recent midterm elections, so investors will be eager to hear whether anything has changed, and they should get some clarity on Nov. 17.
The semiconductor industry faces headwinds, but Nvidia stock is cheap
The risk of a slowdown in infrastructure spending is real. On Nov. 3, constituents in 45 communities across America voted to restrict the building of new data centers in some form, while just one community voted to approve construction.
Texas Governor-elect, Gina Hinojosa, plans to pause new data center approvals in the state until new laws are established to protect communities from issues like soaring electricity prices and water scarcity. According to Cleanview, over 80 data centers are already operating in Texas, with 50 more under construction, and another 120 planned, so the state is one of America’s top destinations for AI infrastructure.
Therefore, it’s no surprise Nvidia stock has pulled back since the elections. It’s hard to predict how the company’s GPU sales will be affected in the near term given so much infrastructure is already under construction not just in the U.S., but also around the world. However, I think Nvidia’s valuation is starting to appropriately reflect the risks at hand, which means its stock could be a great buy on the dip.
Nvidia stock is trading at a price-to-earnings (P/E) ratio of just 22.9, a hefty discount to its 10-year average of 61.2. It’s also significantly cheaper than the Nasdaq-100 index which has a P/E of 29.9, so it looks heavily undervalued compared to a group of its big-tech peers.
NVDA PE Ratio data by YCharts
I think the sharp decline in Nvidia stock has priced in a potential slowdown in sales, so a fierce rebound might be in order if the company’s third-quarter results are positive on Nov. 17, particularly if they are accompanied by some optimistic commentary from Jensen Huang. If he reiterates his original prediction that chip sales will double next year, it will be a sign that he doesn’t expect the recent elections to affect demand — at least in the near term.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
