Nvidia Stock Is Pulling Back. Is It a Good Chance to Buy?

Just as Nvidia (NASDAQ: NVDA) shares approached the all-time high set in June, the stock has begun to reverse course today. Shares were down as much as almost 7% as of about 10:40 a.m. ET Tuesday, with several recent news items apparently scaring investors.

One thing that likely spooked some shareholders was reports that the Biden administration was discussing capping sales of advanced artificial intelligence (AI) chips supplied by Nvidia and other U.S. companies to some countries. At the same time, semiconductor equipment maker ASML warned investors of weaker China sales expected over the next year.

But reading deeper into each of these news items and looking at what Nvidia offers customers should have investors wondering whether today's pullback is, in fact, a good opportunity to buy Nvidia stock.

Nvidia's competitive moat

Astute investors know that Nvidia has faced headwinds in the past. Export restrictions to China, slumping demand in the cryptocurrency mining sector, production delays, and increased competition have all affected its business. But even with that competition, Nvidia CEO Jensen Huang said demand for its newest, next-generation Blackwell AI chip is "insane."

Nvidia's first-mover status is just one reason customers keep placing orders for its new AI chips. Another important factor is how Nvidia has designed its entire AI platform. Nvidia's architecture is based on its CUDA software kit. CUDA, or Compute Unified Device Architecture, is a parallel computing platform and application programming interface the company developed.

CUDA enables systems to ingest AI data to accelerate the training of more AI data. Huang recently described it as a flywheel effect. It allows older versions of its chips to maintain usefulness as the newer, more powerful chips are used to help large language models build AI inference data.

That is to say, Nvidia has a competitive moat that can help continue to push growth in revenue and earnings. That makes today's pullback a good chance for investors to either start or add to positions in the stock.

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Howard Smith has positions in Nvidia. The Motley Fool has positions in and recommends ASML and Nvidia. The Motley Fool has a disclosure policy.