NVDA Stock: Should You Keep Faith With This AI Play?

September hasn’t been kind to Nvidia (NASDAQ:NVDA) stock, which is down on the month.

This decline lacks a clear company-specific cause, and could be attributed in part to a broader stock market retreat.

The Nasdaq-100 Technology Sector Index is down 6% this month, and the S&P 500 has retreated by 4%. Concerns about potential interest rate hikes by the Federal Reserve to combat inflation may keep stock prices under pressure.

Of course, many market pundits and bears suggest that Nvidia’s AI-focused valuation may be unsustainable, leading to doubts about the stock’s future performance. That’s despite the stock’s impressive 190% gain in 2023.

So, should investors consider selling and locking in profits? Let’s dive into the pros and cons of holding Nvidia at current levels.

What Analysts Are Saying

When consulting analysts on the AI market and Nvidia’s position, opinions diverge. Wedbush Securities’ Dan Ives sees Nvidia as a leader in the tech bull market, considering it the vanguard of the AI-driven fourth industrial revolution.

According to LPL Financial analyst Quincy Krosby, Nvidia is currently dominating the AI landscape, which she sees as a significant tech transformation.

However, she advises caution, likening the AI trend to the dot-com bubble burst from the past. Krosby warns that excessive hype around AI could raise concerns among those who remember the dot-com era in finance.

Ives dismisses comparisons between the current AI boom and the dot-com bubble of the late ’90s. He believes the two situations are different, citing substantial spending and distinct underlying narratives.

Ives, who covered tech stocks during the dot-com era, finds it amusing when people draw parallels between the two periods.

Competition is Heating Up

Nvidia’s stronghold in AI chip technology may face challenges from competitors like Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD).

While Nvidia currently holds over 80% of the AI chip market, its GPUs, essential for AI model training, have lengthy wait times of up to six months for customers.

Nvidia might face competition from AMD and Intel in the AI chip sector. Intel, for instance, has secured over $1 billion in revenue for its AI chips through 2024 and has gained major customers like Amazon Web Services.

Intel’s AI solutions could rival Nvidia’s H100 GPU in specific tasks, potentially impacting Nvidia’s market share.

Nvidia’s competitors are targeting the growing AI chip market set to reach $304 billion in 2030, causing concern alongside Nvidia’s high valuation with a price-earnings ratio of 102-times. This exceeded even the company’s own lofty five-year average of 74-times.

Competition from Intel and AMD may prompt selling, but investors should weigh this against potential regrets, given Nvidia’s continued potential.

What Now

Nvidia has room for growth in the AI chip market despite rising competition. The market’s potential could reach $300 billion annually by 2030, while Nvidia’s AI chip revenue for this year is estimated at $25-30 billion.

Nvidia aims to achieve substantial growth in its AI chip sales, potentially reaching $150 billion in revenue by 2030, which would mark a five-fold to sixfold increase compared to its estimated $25-$30 billion revenue in 2023.

This implies a compound annual growth rate of around 30% over the next five years.

Nvidia is expanding in the AI chip market with Grace processors and has growth potential beyond AI in areas like cloud gaming, automotive tech, and digital twins.

Despite recent weakness, bulls could consider it a buying opportunity for Nvidia, given its potential for a rebound and continued growth.

I’m of the view Nvidia is likely a hold at current levels. I don’t own the stock, and won’t be buying it, but I can understand why investors wouldn’t want to sell NVDA stock and incur a big tax bill at this time.

After all, as we’ve seen repeatedly, there’s usually more room to run with this name (somehow).

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.