Is Nvidia a Smart Buy for a Value Investor Right Now?

The hottest tech stocks of the times generally aren't on the buy list of value investors -- and this is because they often trade at lofty valuations. Excitement about the prospects of these players prompts investors seeking growth to rush into these names. We've seen this over the past few years with technology stocks focused on artificial intelligence (AI).

Companies from Nvidia (NASDAQ: NVDA) to Palantir Technologies (NASDAQ: PLTR) saw their stock prices climb in the triple and quadruple digits, and valuation marched higher too.

But, in recent weeks, these and other tech players have stumbled amid many concerns, from worries about the U.S. economy to the war in Iran. Investors have also expressed concern about the levels of spending on AI and whether this investment would bear significant fruit down the road.

All of this has weighed on the valuations of the world's top tech stocks -- including AI giant Nvidia. With Nvidia now trading at its lowest level in about a year, the stock is a buy. But is this top growth player even a smart buy for a value investor right now? Let's find out.

Image source: Getty Images.

A classic growth stock

So, first, let's take a closer look at Nvidia. This player has been considered a growth stock for a good reason: It's been reporting explosive revenue gains, in the double and triple digits, quarter after quarter, during this AI boom. This is because Nvidia is the world's No. 1 designer of AI chips, selling the graphics processing units (GPUs) that everyone wants for their AI workloads. Nvidia's GPUs are the fastest around, and this is an important point for chip customers because speed can help them bring their AI platforms to market sooner -- and generate revenue more quickly.

Nvidia's leadership doesn't end with the GPU; the company has progressively added to its portfolio and offers networking tools, enterprise software, and now is expanding its reach into the area of AI agents. AI chips are needed to power these agents, so Nvidia already fits in here -- but the company is also taking other steps to play a key role in this growth area. For example, it recently announced NemoClaw, a platform that helps customers safely use the popular AI agent OpenClaw.

This chip designer's presence in AI helped revenue to climb to a record $215 billion in the latest full year, and as always over the past several quarters, gross margin has remained high at more than 70%. This shows that Nvidia is highly profitable on sales.

Nvidia's declining valuation

Though Nvidia's earnings are going strong, the company has still faced the headwinds brought on by market uncertainty in recent weeks. And that's resulted in a sharp decline in the company's valuation to levels often seen in the world of value stocks.

NVDA PE Ratio (Forward) data by YCharts

Value stocks are those that trade for less than what they're truly worth, and value investors specifically seek out these players with the idea that they eventually will reach their true value. This is a great strategy for long-term investors, because with an investment horizon spanning many years, they have time to watch this scenario play out. (But whether you favor growth or value stocks, long-term investing always is the way to go -- it allows your portfolio to recover from any bumps along the investing path and maximize gains.)

Revenue expectations

So, is Nvidia a value buy? Right now, yes, Nvidia could make the cut. Analysts expect annual revenue to climb 72% in the current full year, making the stock look undervalued at today's levels.

And evidence shows Nvidia could reach these growth expectations. The company continues to note high demand for its AI products, and the release of its next platform, Vera Rubin, later this year should offer it an extra boost. Comments from its customers, tech giants such as Meta Platforms and Amazon, support this idea of ongoing growth as they are investing to ramp up their AI infrastructure -- and as part of that, they need chips.

The one thing to note is that Nvidia, though it's wearing the cloak of a value player today, remains a growth stock, as its growth rate shows. And it's very likely the stock will return to a higher valuation in the future. So it may not offer the slower and steadier pace of a classic value stock, meaning it's not the best bet for every value investor.

But for value investors who like the idea of getting in on potentially explosive growth for a dirt cheap price, Nvidia makes a smart buy today.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.