The adoption of artificial intelligence (AI) is underway, but some investors fear the trend is getting old. Economic fears and weakness in AI stocks have contributed to the Nasdaq-Composite Shares entered a correction zone earlier this month, and given the high valuations, some believe there could be further declines.

NVIDIA (NVDA -0.21%) has become the poster child for the generative AI trend. When the company reports its results later this month, it’s no exaggeration to assume that Wall Street will be eagerly awaiting insights into the state of AI adoption.

Nvidia’s revenue has skyrocketed since the start of 2023, driving the stock up 619% (at the time of writing), though it is currently more than 22% below its peak.

With so much riding on Nvidia’s quarterly results, investors are wondering if the recent share price drop represents a buying opportunity ahead of the company’s highly anticipated financial report. Let’s look at the available evidence.

Image source: Getty Images.

Anecdotal data is strong

The biggest driver for Nvidia over the past 18 months has been the rapid adoption of generative AI by cloud infrastructure providers best positioned to monetize AI. Nvidia’s graphics processing units (GPUs) are the gold standard for these applications.

As a result, cloud infrastructure providers, including Amazon Web services, Microsoft Azure and alphabetGoogle Cloud, have upgraded their data centers to provide the computing power needed to run AI. Even Meta-platforms has jumped on this bandwagon and developed one of the leading large language models (LLMs) to benefit from AI.

Demand for Nvidia’s AI-centric processors remains robust across the leading cloud providers, and all have announced plans for increased capital spending to support their AI ambitions. This bodes well for Nvidia in the current quarter.

Competitors and partners report robust sales

There is further evidence that Nvidia’s results will be robust.

Advanced micro devices (AMD -1.50%)also known as AMD, is one of Nvidia’s biggest competitors in the GPU space. The company reported its second-quarter results late last month, and the strength of its AI-related sales surprised many market observers. While revenue rose 9% year-over-year, beating expectations, revenue in the data center sector rose to a record $2.58 billion, up 115%, driven by rising demand for AI.

Arm Holdings (ARM -1.21%) creates the CPU cores found in many of Nvidia’s AI processors, and its results were similarly upbeat. For the first quarter of fiscal 2025 (which ended June 30), Arm reported its fourth consecutive quarter of record results. The company posted record revenue of $939 million, up 39% year over year, the result of record licensing revenue driven by “the proliferation of AI.”

Super-microcomputer (SMCI -0.23%) delivers server and storage solutions using next-generation AI processors from Nvidia and others. In the fourth quarter of fiscal 2024 (ended June 30), the company’s revenue rose to $5.3 billion, representing annual growth of 143% and quarterly growth of 38%. Despite its parabolic growth rate, management noted that Supermicro continues to be hampered by near-term “supply chain bottlenecks.”

The common thread running through all of these AI players is that demand remained strong last quarter, driven by long-term AI tailwinds. This suggests that Nvidia’s revenues should be similarly robust.

Stock splits are bullish

There are other reasons to believe that Nvidia stock could rise even further from now on. Research by analysts at Bank of America shows that in the 12 months following the announcement of a stock split, shares from a stock split gained on average 25%, compared to only 12% for S&P500.

Since Nvidia announced its stock split on May 22, the stock has actually fallen 19% (at the time of writing) as economic concerns overshadowed AI tailwinds. If history is any indicator, Nvidia still has plenty of double-digit upside ahead.

Is the stock a buy before August 28?

For investors looking to make a quick buck, Nvidia is probably not the right stock. As the current stock chart shows, Nvidia has been and continues to be a volatile stock. While investors who bought last year are likely sitting on triple-digit gains, those who bought last month could have lost more than 22%. This helps illustrate a timeless truth about investors: It’s best to buy shares of the best companies you can find and hold them for three to five years, as you’ll suffer less from the effects of short-term volatility.

If you’re wondering if Nvidia stock will rise or fall after its upcoming financial report, you might as well guess as I did. I sent my crystal ball to the store years ago, but it still hasn’t come back. Moreover, anyone who claims to know what will happen in the next few days or weeks isn’t telling the truth.

If I were to hazard a guess – and that would be all – I would guess that Nvidia will report another quarter of record revenue. Analyst consensus estimates call for revenue of $28.52 billion, slightly above Nvidia’s forecast of $28 billion. However, how the stock price reacts after the report will depend greatly on the company’s profitability and Nvidia’s guidance.

It’s important to step back and look at the bigger picture. Nvidia’s GPUs are the gold standard for AI processing, and while there’s always the threat of competition, no obvious successor has emerged yet. Most experts believe generative AI is still in its infancy as adoption continues to grow. Even the most conservative estimates suggest generative AI will be a trillion-dollar market, with some forecasts several times higher.

Nvidia stock trades at a premium of 38 times earnings (at the time of writing), but the company’s triple-digit growth, industry-leading position, and long track record of success show that the company is worth every penny.

My advice to you is: If you believe, like me, that AI still has a long way to go and Nvidia will maintain its market dominance, then buy Nvidia shares and hold on to them at all costs.