Down 11%, Should You Buy the Dip on Nvidia?

Nvidia (NASDAQ: NVDA) has been one of the biggest beneficiaries of the ongoing artificial intelligence (AI) race. Its powerful data center graphics processing units, which have incredible market share, help support AI training and inference. This has led to robust demand, which has propelled shares up 1,230% in the past five years (as of Jan. 22).

This top AI stock is trading down, off 11% from its peak. That has some investors wondering if the incredible share price runup is petering out. It has others thinking this might be a great time to buy in, as shares are trading at a discount and they will eventually continue their upward climb.

Who's right? Should you buy the dip on Nvidia?

Image source: Nvidia.

Nvidia is betting on the AI infrastructure layer

OpenAI's ChatGPT, Alphabet's Gemini, Anthropic's Claude, Perplexity, and others get a lot of attention because they are user-facing AI chatbots that have basically set off the AI age. But digging a bit deeper and looking upstream shows that Nvidia is the winner, given that it operates at the AI infrastructure layer. Viewed in this light, the business is a pick-and-shovel investment opportunity.

It's impossible not to come away awestruck with Nvidia's financial performance. Revenue increased 62% year over year to $57 billion in Q3 2026 (ended Oct. 26 last year). Analysts expect 51% and 28% jumps in fiscal 2027 and fiscal 2028, respectively, based on consensus estimates.

Profits have also been exceptional. In the past three years, Nvidia's net income margin went from 11% to 56%.

Nvidia's focus on innovation

Innovation remains management's top priority. At CES Las Vegas earlier this month, Nvidia revealed its Rubin computing platform that's supposed to "deliver up to 10x reduction in inference token cost and 4x reduction in number of GPUs" relative to its predecessor Blackwell platform, according to the press release. Rubin is in production right now.

And perhaps making Tesla shareholders nervous is Nvidia's announcement that it has released Alpamayo, its open-source AI models to support the development of autonomous driving technology. The plan is to sell this solution to car makers to help them build vehicles, starting with the newest Mercedes-Benz CLA, that can compete with Tesla's self-driving capabilities.

Is Nvidia stock too expensive?

Investors who missed the boat and who've been watching Nvidia from the sidelines might be wondering if it's too late to get in on the action, especially after such a phenomenal performance for the stock. It's wild to think that with such stellar revenue and profit growth, and with all of the attention it gets, Nvidia shares aren't expensive.

Investors can buy the stock right now at a forward price-to-earnings ratio of 23.9. This means it's a good idea to add Nvidia stock to your portfolio while it's trading on the dip.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Tesla. The Motley Fool has a disclosure policy.