Nvidia Stock Just Lost 10% in 1 Day. Should You Buy It Before It Reports Earnings on Nov. 17?

Nvidia's stock suffered a sharp 10% decline within a single day, raising questions about whether investors should consider purchasing before the company's earnings report on November 17. This decline comes just a week after the U.S. election, during which several Democratic candidates campaigning against AI development and data center expansion secured their positions.

While some AI-related stocks, such as Amazon, saw gains due to concerns about excessive spending on data centers, Nvidia, being a leader in the graphics processing units (GPUs) powering AI workloads, experienced a significant drop. The company holds up to 95% of the data center GPU market. Wall Street anticipates Nvidia's revenue to grow by 91% this year, and management has indicated a 70% sales increase in the upcoming year, describing it as a supply-constrained outlook.

Despite this challenging period, Nvidia's fiscal third quarter is expected to show a 90% sales growth, with earnings per share projected at $2.47, up from $1.30 the previous year. However, the stock's gross margin may decline, as it is now guiding for around 74%, a decrease from previous levels. This decline is attributed to the rising costs of memory chips, affecting multiple AI companies.

At the present valuation of 11 times next year's expected earnings, Nvidia's stock appears reasonably priced. If the company maintains its guidance for next year, the stock could rise, as a lower P/E ratio typically indicates that the market doubts the company's ability to sustain rapid earnings growth. For long-term investors, Nvidia offers an excellent business opportunity, as its products remain crucial for AI development, which is an ever-evolving field.

While the stock may experience volatility as AI companies adjust to the changing landscape, now could be a suitable time for long-term investors to buy shares, keeping in mind the potential for fluctuations.