Cathie Wood Just Bought Nvidia Stock, Is It Finally Time to Buy?

The artificial intelligence (AI) revolution has taken a few turns in recent weeks. Nvidia (NASDAQ: NVDA), the company that started it all, has been sliding this summer after peaking in May. For the first time in months, Nvida no longer wears the market cap crown.

Apple's (NASDAQ: AAPL) rise this week, coupled with Nvidia's 10-week slide, leaves the class act of Cupertino alone at the top of the list of most valuable companies by market cap. The passing of ships -- or chips, if you prefer -- is creating an opportunity. Ark Invest co-founder and CEO Cathie Wood has been buying shares of Nvidia for all five of Ark's largest exchange-traded funds. Let's take a closer look to see if you might want to follow her lead.

Image source: Getty Images.

You can't spell GPU without P-U

Nvidia stock has tumbled 17% since its mid-May all-time high. There are smaller AI stocks sporting sharper corrections, but the slide here is notable. Nvidia's business didn't peak when its stock chart did. A week later, it reported an 85% year-over-year revenue surge for its fiscal first quarter that ended in late April.

Revenue has accelerated for three consecutive reports, and even the starting line was impressive. Nvidia's quarterly top-line increases have been 55%, 63%, and 73% before late May's 85% pop. The revenue growth is Nvidia's strongest move in a year and a half.

The marketplace may change in the coming years, but for now, Nvidia makes the most popular high-performance GPUs and AI accelerators that data centers need for hyperscalers and other enterprise customers to crank out AI solutions. Nvidia's data center revenue rose 92% in its fiscal first quarter, accounting for 92% of the company's total revenue.

And if you think Nvidia's top-line performance is great, you're going to love what's going on as that revenue works its way down the income statement. Its adjusted operating profit and earnings more than doubled for the quarter.

A compelling value stock argument for a monster growth stock

Nvidia didn't rattle investors by hosing down its guidance or becoming tighter with its money two months ago. Estimates have moved higher. Nvidia also announced a 25-fold increase to its dividend and authorized $80 billion in buybacks.

Wood thinks Nvidia is a bargain here, and the company seems to agree. Valuation arguments are easier to make when a stock ticks lower as its fundamentals inch higher. And Nvidia fits that dream scenario. Based on Tuesday's close, Nvidia is now trading at 22 times this fiscal year's projected earnings and just 15 times next year's target.

Outside the highly cyclical memory and storage stocks, you probably won't find too many companies growing at an 85% clip, fetching a year-ahead multiple in the mid-teens. Still, Nvidia isn't perfect. The company is facing its own supply chain constraints, there's growing uneasiness about the circular financing deals that Nvidia is championing to drum up business, and Chinese trade restrictions and tariff concerns remain in place. No one is denying the headwinds here, but the tailwinds haven't stopped swirling, either.

Nvidia stock was cheap before, and it's even cheaper now. I don't agree with all of Wood's buy-and-sell decisions, but this one seems pretty easy to like.

Rick Munarriz has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.