Nvidia stock sank in after-hours trading today — here’s why the stock could be a solid buy

What happened

shares nvidia (NVDA 5.08%) It fell in after-hours trading on Thursday, as investors responded to the chipmaker’s less-than-expected guidance. As of 6:40 PM ET, Nvidia’s stock price is down more than 6% after rising 5% earlier in the day.

So what

Nvidia’s revenue rose 46% year over year to $8.29 billion in the third quarter of fiscal year 2023, which ended May 1. This impressive growth was driven by an 83% increase in data center sales, to $3.75 billion, and a 31% increase in gaming. Revenue, to $3.62 billion.

“We delivered record results in the data center and games against a challenging macro environment,” founder and CEO Jensen Huang said in a press release. “The effectiveness of deep learning for intelligence automation is driving companies across industries to adopt Nvidia in AI computing.”

Despite the supply chain turmoil plaguing the tech sector, Nvidia has been able to manage its costs effectively. Adjusted gross margin increased 90 basis points (one basis point equals 0.01%) to 67.1%. That, combined with Nvidia’s strong sales growth, helped its adjusted operating income grow 55% to $3.96 million. Adjusted earnings per share, in turn, were up 49% to $1.36.

What now

However, investors appeared to be focusing more on Nvidia’s financial outlook for the second quarter of fiscal year 2023. Management was guided by revenue of about $8.1 billion, which was less than Wall Street’s estimate of more than $8.5 billion.

Nvidia has indicated that the war in Europe and the coronavirus-related shutdowns in China are likely to negatively affect its sales results by about $500 million. However, Huang highlighted the company’s promising list of new offerings due later this year, and remains optimistic that strong trends will continue to support Nvidia’s long-term expansion. He said:

We’re preparing for the biggest wave of new products in our history with an increase in GPU, CPU, DPU, and new robots in the second half. Our new chips and systems will advance artificial intelligence, graphics, Omniverse, self-driving cars and robotics, as well as the many industries these technologies affect.

Thus, patient, long-term investors may want to use the sale as an opportunity to buy shares of the technology leader at a discount.