Nvidia Stock Is Down 17% From Its High. Is the Artificial Intelligence (AI) Leader Finally Cheap?

The largest company in the world, Nvidia (NASDAQ: NVDA), has had a bit of a rough stretch in recent months. Its stock peaked in May, but declined around 17% since then. That's not an insignificant decline, and leaves investors wondering when the next rally could be coming.

I think there are some catalysts later on in July that could cause Nvidia's stock to rocket back to all-time highs, and investors would be smart to load up on shares before the rally occurs.

Image source: Getty Images.

The next month will prove the AI build-out is as strong as ever

Nvidia makes graphics processing units (GPUs) along with various products to support its accelerated computing ecosystem. GPUs are still the top choice for running AI workloads, and Nvidia dominates the market share of GPUs sold for data center computing. There's a very strong correlation between increasing data center spending and Nvidia's sales, and that trend will likely accelerate as data centers shift from construction costs to computing costs.

This year, the big four AI hyperscalers plan to spend around $650 billion on data center capital expenditures. Next year, Nvidia claims this group will spend more than $1 trillion.

That's a major increase and should boost Nvidia's revenue along the way. In July, all of the big four AI hyperscalers report earnings, which will likely include commentary surrounding AI spending and how these companies are monetizing AI. I'll be paying attention to all of them, but the biggest one I'll be watching is Microsoft (NASDAQ: MSFT), as its fiscal year ended on June 30. Microsoft will provide investors with fiscal year (FY) 2027 capital expenditures guidance, and a huge jump over last year's figure could confirm the bull case behind Nvidia's stock. That could help propel it back to all-time highs, which is why I think Nvidia is a strong buy now.

Another key announcement will come from Taiwan Semiconductor Manufacturing Company (NYSE: TSM), Nvidia's primary logic chip fabricator. If TSMC reports strong growth from AI semiconductor sales, it will be easy to draw a conclusion that Nvidia is also doing well.

I think both of these companies will report strong earnings with great forward guidance, and that could cause Nvidia's stock to rise. Even if it doesn't, Nvidia reports earnings in late August and will likely report another blowout quarter, as there hasn't been any shift in actual spending habits from Nvidia's core clients yet.

As for a price tag, Nvidia trades for just 21.7 times forward earnings -- the same price tag as the S&P 500 (SNPINDEX: ^GSPC).

NVDA PE Ratio (Forward) data by YCharts

All of this adds up to make Nvidia a screaming deal in the market, and I think it's well worth buying right now.

Keithen Drury has positions in Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.