Nvidia's CEO Called the Dip Months Ago. Here Is How the Trade Played Out.

On June 8, Nvidia (NVDA -2.38%) CEO Jensen Huang called the sharp technology sector sell-off that occurred in early June a buying opportunity. Speaking to reporters in Seoul that day, Huang said the artificial intelligence (AI) infrastructure build-out was still in its early stages. So, investors should be "very happy because now you can buy at a discount."

His call seems to have been spot on so far. From its opening price on June 8 to the close of trading on Sept. 4, Nvidia's stock gained about 9.6%, compared with a roughly 3.7% gain for the S&P 500 (^GSPC -0.63%) over the same period.

However, investors should note that Nvidia's shares did not immediately move higher after Huang's comments.

On June 29, Nvidia fell to an intraday low of $189.80, almost 10% below its June 8 opening price. A $10,000 investment made at the June 8 open would have at that point been worth about $9,030.

The stock then spent several weeks recovering. However, its biggest move came after Nvidia reported results for its fiscal 2027 second quarter, which ended July 26. That report came out after the market closed on Aug. 26, and shares jumped 8.7% on Aug. 27. On Sept. 4, Nvidia closed at $230.36.

Hence, most of the gains made by the stock since Huang's June comments came only after Nvidia gave investors fresh evidence that its AI growth story remained strong.

Nvidia's revenue surged 106% year over year to $96.2 billion in its fiscal second quarter, while data center revenue jumped 117% to $89 billion. Management also guided for third-quarter revenue of $108 billion, plus or minus 2%.

Management's preliminary expectation is for revenue to grow by about 70% in its fiscal 2028. Wall Street's previous consensus expectation was for revenue growth of roughly 44% for fiscal 2028. Management also said this outlook is based on its production being supply-constrained, suggesting that demand remains stronger than the company's ability to supply AI computing systems.

These results have strengthened Huang's June argument. Nvidia's fiscal Q2 results and outlook now provide significantly more evidence that AI infrastructure spending still has room to grow.

Nvidia's valuation still seems reasonable considering its expected growth. The stock is trading at roughly 24.7 times its expected fiscal 2027 earnings of $9.31 per share. The multiple falls to about 14.9 times based on the fiscal 2028 earnings estimate of $15.46 per share.

There are risks, however. Nvidia expects its gross margin to slip from the 75% it was last quarter to roughly 71% to 72% in the fourth quarter as the memory shortage and higher component prices raise its costs. The company's fiscal third-quarter guidance also assumes that it will sell no data center chips to customers in China.

Huang's June call has proven fairly accurate so far. While he did not identify the exact bottom of the dip in Nvidia's stock, it has since outperformed the broader market. The company's latest results provided much stronger support for the fundamental argument behind the CEO's call.