With fears of a recession mounting, growth stocks have been pulverised over the last couple of months. Yet while investor fears may be well-founded, a recession is not a major long-term issue. And for investors with capital to spare, the ongoing volatility is creating countless opportunities to buy fantastic businesses at a discount.
With that in mind, let’s take a look at one such business I think could be an excellent addition to my portfolio today.
A growth stock fallen from grace?
Nvidia (NASDAQ:NVDA) is one of the largest semiconductor growth stocks in the world. It specialises in designing high-performance graphics chips called GPUs, used by gamers, visualisation professionals, and data centres.
To keep operations flexible, chip manufacturing is handed to third-party experts such as TSMC and Samsung. However, while this does allow the firm to focus its resources on technical innovation, it’s created a few issues in recent years.
The supply chain disruptions caused by the pandemic have resulted in a semiconductor shortage. And when combined with inflation, the cost of manufacturing and distribution has increased significantly.
So it’s not surprising to see investors panic, slashing the share price in half over the last six months. The stock is still up by around 20% from a one-year perspective. But it begs the question, is this fall justified? Or is this just another growth stock to get caught in the sell-off crossfire?
Taking a closer look
Supply chain disruptions, rising manufacturing costs, and logistical nightmares are understandable reasons to sell shares in a business. But it seems investors may have jumped the gun when it comes to Nvidia. Why? Because revenue and profits are at an all-time high.
Total sales for the last 12 months came in 53% higher than a year ago, at $26.9bn. And with management flexing its pricing power, gross margins actually increased even with rising costs! As such, net income landed at $9.7bn – a 125% surge versus a year ago.
With all its divisions (excluding a tiny robotics segment) outperforming analyst expectations, along with guidance indicating current top-line growth and margin expansion will continue, this stock looks like it’s perfectly positioned to thrive throughout 2022 and beyond.
Time to buy?
Sadly, nothing is risk-free. Even an industry titan like Nvidia has its weaknesses. And my main concern continues to surround manufacturing. With demand for semiconductors continuing to skyrocket, courtesy of the automotive industry, getting its GPUs into customers’ hands could prove challenging.
What’s more, if the quality of the chips that do make it to customers turn out to be of poorer quality due to a rushed manufacturing process, it could cause severe damage to Nvidia’s reputation, opening opportunities for its competitors.
Having said that, I personally believe the recent collapse in its stock price has created an immense buying opportunity. That’s why I’m tempted to snatch up some shares for my portfolio while the price remains, in my opinion, cheap.
