3 Reasons to Buy Nvidia Stock in August

Nvidia (NASDAQ: NVDA) is starting to get lost in the crowd. The artificial intelligence (AI) bellwether remains on top of the market cap list, but its performance lately has been underwhelming.

Nvidia ended July essentially where it started. The stock's 8% year-to-date gain and 13% increase over the past year trail the market on both counts. August offers the promise of something new: volatility. With a critical financial update now just three weeks away and a compelling valuation, Nvidia is ready to stand out from the crowd again.

Image source: Getty Images.

1. Earnings season is finally here

Nvidia stock will be on the move after the market closes on Aug. 26. It isn't likely to march in place until then, as it did last month, but it will definitely move sharply higher or lower over the final few days of August.

Expectations are high. Analysts see revenue shooting 96% higher to $91.85 billion for the fiscal second quarter that ended last week. They see the bottom line following suit, with earnings per share nearly doubling to $2.08 after ringing up a profit of $1.05 per share a year earlier.

Recent history suggests that Nvidia will do slightly better than expected. It has landed 3% to 6% higher than Wall Street's profit target in each of the four previous quarterly updates. That might seem comforting at first glance, but recent history rears its ugly head again:

NVDA data: YCharts.

The four purple circles represent when Nvidia announced its quarterly results over the past year. In all four cases, the shares moved markedly lower in the aftermath. Stellar top-line growth and modest earnings beats weren't enough to impress the market. Nvidia will need more in its tank this time, and thankfully, it could make a difference that the stock conserved its energy this summer.

Take one final look at that chart. Have you noticed how each subsequent earnings report came with the stock at a higher price point than the previous update? The initial reaction was to sell, but a rally eventually bore fruit, weeks later, if not a month or two later. Things are different this time, with Nvidia trading substantially lower. A break from the pattern could be just the ticket for the stock to finally move higher -- for the first time in more than a year -- after an Nvidia earnings report.

2. Stock chart aside, momentum is building

Short-term price action can be cruel sometimes. If Nvidia comes even reasonably close to the 96% year-over-year revenue jump the market is expecting, it will be the fourth consecutive quarter of accelerating top-line growth.

Revenue has gone from a 56% step-up in last year's fiscal second quarter to increases of 63%, 73%, and 85% in its latest financial report. The cherry on top of this sundae of disconnected fundamentals is that Nvidia is doing this while it's not close to full strength. Trade restrictions remain in China, the world's second largest economy. Supply-chain constraints are keeping AI chip producers in the equivalent of an elementary school speed zone. Nvidia's competitors are bumping up against the same headwinds, but they're also gaining ground here.

Nvidia looks better than its stock chart. It's more than the sum of the earnings season slides, which it was able to claw its way out of to a higher level until this summer's sector rotation. Nvidia will be fine, and that's even more true if you have the luxury of patience to see this through.

3. Nvidia was cheap before, and it's even cheaper now

Investors haven't lost money in Nvidia during the lull. There are fates worse than merely treating July like a staring contest and losing to the market over the past year despite posting double-digit returns.

The stock went on a round trip to nowhere last month, but the analysts continued to nudge their profit targets higher. Analysts now see Nvidia earning $9 a share in the current fiscal year and $12.89 a share in fiscal 2028, which starts in less than six months.

Those consensus estimates were lower a month ago and even lower the month before. Time-travel to three months ago, and Wall Street was modeling a consensus profit per share of $8.34 for fiscal 2027 and $11.23 for next year. Nvidia enters August trading at a reasonable 22 times this fiscal year's earnings and less than 16 times next year's target.

It's a good time to be a market contrarian when it comes to Nvidia. Now let's see what August has to say about things.

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