Is Nvidia Stock a Buy Right Now?

Shares of Nvidia (NASDAQ: NVDA) were battered this week by news that the company's CEO, Jensen Huang, resigned. He departed the business he co-founded after a scandal broke over his involvement with a woman suspected of being a spy for China, who may have illegally diverted at least $7.5 billion in Nvidia hardware to Chinese businesses, according to media outlets. There were also reports of inappropriate relationships with at least two Nvidia employees.

Huang's sudden departure shifts Nvidia's leadership on an interim basis to CFO Colette Kress, who has been with the company since 2013.

All this bad news has led to Nvidia stock plunging almost 20% since the start of November. Does the situation suggest now is the time to buy Nvidia stock?

The answer is not straightforward. Here's why.

Image source: Getty Images.

Reasons to buy Nvidia shares

Despite the current controversy, there are several reasons to buy Nvidia stock. The company had racked up customer orders well before Huang's departure, and in the near term, those orders should help it continue to produce the impressive revenue growth it's delivered to date. During Nvidia's fiscal 2027 second-quarter (ended July 26) earnings call, management projected 70% year-over-year revenue growth for fiscal 2028, despite supply chain constraints.

In addition, the chipmaker's new Vera Rubin artificial intelligence platform is rolling out, and that product already looks like a success. The system is expected to deliver sales of $20 billion in Q3, and would represent Nvidia's fastest product ramp in its history.

Moreover, the decline in share price has resulted in an attractive valuation. Nvidia's forward price-to-earnings ratio sits around 11, a low point for the past year. Compare that to its chief rival, Advanced Micro Devices, which sports a much higher forward earnings multiple of 30.7, indicating its stock is far more expensive.

Nvidia's forward earnings multiple is so low, about a third of what it was a year ago at this time, that it suggests shares are oversold. Even before the recent drop, Nvidia management thought its stock was cheap. In September, it announced a massive $150 billion increase to its existing share repurchase program. These factors make now a good time to buy Nvidia stock.

The concerns about buying Nvidia shares now

While Nvidia's low valuation makes it a compelling short-term buy at its current level, the long-term picture is murkier. Jensen Huang's departure is a major blow to the organization. He was a visionary leader who realized the graphics processing unit the company pioneered back in 1999 could be used to power AI systems. In 2016, he hand-delivered the world's first supercomputer designed for artificial intelligence to OpenAI, positioning Nvidia for spectacular success while competitors were caught flat-footed when ChatGPT took off.

I had confidence Jensen Huang could envision Nvidia's next move after AI chip sales cooled. The company was making a push to use its solutions with quantum computers in a hybrid system, so perhaps that was where he was guiding the business.

Now, it will be up to the next CEO to determine Nvidia's direction. That person will have big shoes to fill, and must prove they can successfully guide the company's evolution amid a rapidly moving AI ecosystem, if Nvidia stock is to deliver attractive returns over the long haul. So while shares are cheap today, Nvidia stock is likely to be volatile until the leadership vacuum is resolved, adding risk to the decision to buy shares now.

Robert Izquierdo has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.