Key Points
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On June 8, Jensen Huang told investors to buy during a period of price weakness.
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Huang is biased, but still, his logic was based on a much bigger trend.
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It is a CEO's job to put the company they run in the best light possible in every circumstance. So it shouldn't be surprising that Jensen Huang, the CEO of Nvidia (NASDAQ: NVDA), told investors to buy Nvidia stock amid a broader pullback in artificial intelligence (AI) stocks. That said, since his call, Nvidia is up just about 4%, as of this writing. That's not great compared to this alternative AI investment approach. Should you worry?
Nvidia is lagging... after three months
Huang made his "buy" call roughly three months ago. Since that point, his company's stock has been up 4%. An investment in the S&P 500 index (SNPINDEX: ^GSPC) would have returned about the same amount. So, it is hard to suggest it was a bad call. However, if you had put equal amounts into Nvidia, Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Alphabet (NASDAQ: GOOG), creating a diversified artificial intelligence basket, you'd have benefited from an 8% gain. So it is hard to suggest Huang's call was a winner, either.
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Notably, almost all of the diversified AI basket's gains were attributable to Microsoft, which rose a huge 24% over the period. Alphabet actually fell 5%, while Amazon was up 8%. The real takeaway here? Three months is just too short a period to decide whether an investment is good or bad if you are a long-term investor.
Which brings up Jensen Huang's "buy" recommendation. While he was reacting to market movements in some respects, his logic was clearly grounded in his belief that AI is a long-term growth engine for both his company and the world. In fact, the company's financial results in the fiscal second quarter of 2027 show that demand for AI chips remains very strong. Revenues rose 18% sequentially from the first quarter and an impressive 106% year over year.
Is Nvidia still trading at a discount?
While it seems unlikely that this level of growth can continue forever, it is very clear that Huang's optimism about the future is founded in the success his company is seeing as global AI investment continues to grow. If you think long-term, that suggests the CEO could still be right about buying at a discount. In fact, the stock's 17.5x price-to-earnings ratio is not only below its 23x five-year average, but it is also far below the S&P 500 index's 25x P/E ratio. For tech investors looking to buy and hold an AI stock for the long term, Huang's advice could still be worth heeding, even if it wasn't a clear winner over the short term.
Should you buy stock in Nvidia right now?
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.