Shares of NVIDIA Corporation have fallen over the last few trading sessions. Is this an opportunity to buy NVDA stock on the cheap or is it time to sell? 

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The uptrend in the shares of the Santa Clara, California, based NVIDIA Corporation (Nasdaq:NVDA) seems to have come to an abrupt halt. After rising 11% through the year to a peak of $119 February 9, NVDA stock has lost just over 7% in the few trading sessions since then, closing the last trading session at a price of $110.76 (Feb 22). The pain has only increased as the stock is down a further 2.66% to $107.81 in pre-market trade. The fall in the after-hours trade can be attributed to a couple of analyst reports which seem to have spooked NVIDIA investors. Romit Shah from Nomura downgraded NVDA stock by many notches, from an earlier "Buy" rating to a "Reduce" rating. Giving the Nomura analyst company was Ruben Roy from MKM partners, who initiated coverage on NVIDIA with a "Neutral" rating. With the NVIDIA stock falling off the cliff, is it time to exit the stock? Or, is it yet another opportunity to buy NVDA stock on the dip? Well, we think it's the latter. Here is why we think NVIDIA stock is poised for a rebound.

Wall Street Is Underestimating NVIDIA.

Well, in all honesty, Wall Street has underestimated the potential of the opportunities which lie ahead of NVIDIA. It's evident from the fact that the company has beaten Wall Street's EPS estimates by an average of 22% over the last 4 quarters. The beats over the last 2 quarters of FY 2017 came in at 45.6% and 19.3%, higher than a 3.1% beat in Q1 and an 8.1% beat in Q2. Well, while that's in the past, the future looks no different. According to Estimize, the Q1 FY2018 EPS consensus has climbed from $0.43 on November 7 to $0.68 currently. Well, that's a 58% rise in estimates in a little over 3 months. The revenue estimate has climbed by a more modest, but equally impressive, 23.4% over the same time frame. Is Wall Street playing catch up given the opportunities ahead of NVIDIA? Well, that appears to be the more likely case here. The current street consensus expects the company to report an EPS of $2.81 for FY 2018 (Jan 2018 ending), implying a growth of 9%. To put things in perspective NVIDIA saw its earnings rise by 37% YoY in FY 2017, with Q3 and Q4 EPS growth coming in at 88% and 182%, respectively.

NVIDIA valuations Are Really Attractive

The result of the strong earnings growth and a falling stock price has led to a significant drop in the valuation multiples for NVIDIA. NVIDIA stock currently trades at a price-to-earnings (PE) ratio of 43.4, which is down from a 62X multiple on Feb 8. That's a 30% compression in the multiple in just 9 trading sessions. The only fundamental change over this time period was that the company beat Wall Street estimates by a big margin. Well, and it's not like the management expects this growth to taper off anytime soon.

NVIDIA Expects Its Current Momentum To Continue

Quoting Jen-Hsun, CEO of NVIDIA, from the latest earnings call, "I mean, when you look back on last year and we look forward, there's a lot of reasons why Datacenter business overall grew 3x, grew by a factor of three. And so I would expect that to happen, to continue." He expects the Datacenter division to continue on its current growth trajectory. Referring to the various products which NVIDIA has developed for the cloud, Jen stated, "And so these pieces, AI, high-performance computing, cloud computing, GRID and DGX all in contribution, contributed to our growth in Datacenter quite substantially. And so my sense is that, that as we look forward to next year, we're going to continue to see that major trend."

NVIDIA also expects its gaming segment growth to continue. In his bearish note, Nomura analyst Romit Shah stated that "the sell-side consensus has underappreciated the slowdown in video gaming" and reduced his price outlook to $90, from an earlier $100. Well, the management thinks otherwise. In response to a question from Merill Lynch's Vivek Arya, regarding the gaming cycle, the NVIDIA CEO said "Well, let's say we typically assume that we have an installed base of a couple of 100 million GeForce gamers, and we've upgraded about two-quarters of them, as in two operating quarters out of four years. It takes about three to four years to upgrade the entire installed base. And we started ramping Pascal, as you know, a few quarters ago. And our data would suggest that the upgrade cycle is going well, and we have plenty to go."

Final Thoughts

Given the recent management commentary, NVIDIA's growth story remains intact, to say the least. Selling the stock on growth concerns is uncalled for and long-term investors should use this latest dip to accumulate NVIDIA shares on the cheap. Therefore, we view the recent fall in NVIDIA stock price as a "buy on the dip" opportunity rather than a reason to sell NVDA stock.