Nvidia's share price continues to fall. Should you buy on the decline?

As Warren Buffett once said, it can pay to be “fearful when others are greedy, and greedy only when others are fearful.” Does this present investors with a unique opportunity to buy shares on a dip in a fast-growing company that generated about 30 percent of the S&P 500's total return in the first half of the year?

Even after the plunge, Nvidia stock is still up 115% year-to-date. But analysts have made it clear that investors should not expect the stock – which closed just above $106 on Wednesday, after hitting an all-time high of $140.76 in June – to continue to rise at the same pace. It is also widely known that revenue growth is bound to slow, given the staggering growth of previous quarters.

To understand why Nvidia's growth will slow, let's look at the data center business, which has been the company's main revenue generator. Revenue from this division reached a record $26.3 billion last quarter, up 154% year over year. Still, this was a far cry from the 427% revenue increase seen last quarter.

The company is encountering the law of large numbers, said Angelo Zino, senior vice president and tech equity analyst at CFRA Research, in an interview with Assets before the release of the second quarter results last week. He warned his customers to be cautious before the call.

“But listen, if you look at the valuation of this company, you'll see that it's trading well below average compared to its historical value,” he said.

That message was echoed by Bank of America analysts led by Vivek Arya even after Nvidia beat expectations on its latest earnings results. Arya and his team raised their price target on the stock to $165 from $150. Zino and CFRA maintained their buy rating on the stock and stuck with a $139 price target for the year.

Nvidia traded at about 68 times diluted earnings per share as of Tuesday's close, according to S&P Global Market Intelligence, down from a P/E ratio of 180 last September.

The biggest long-term concern for Nvidia, Zino said, is what happens when demand, which currently far exceeds supply, begins to dry up. In a tweet on Wednesday morning, CNBC'sS Jim Cramer said he believes Nvidia stock was significantly hurt by a note from Michael Cembalest, chairman of markets and investment strategy at JP Morgan Asset Management. Cembalest expressed doubts about whether tech giants like Google, Amazon, Microsoft and Meta will see adequate returns after spending hundreds of billions of dollars on AI investments.

It's not a market-wide sell-off by any means. It's a sell-off of everything AI/data centers/computing, as well as housing and oil and some infrastructure companies.

— Jim Cramer (@jimcramer) 4 September 2024

In the long run, Zino believes the answer is yes.

“Because this is exactly the kind of change, the permanent change that we are going to see,” says Zino. “There are simply going to be a lot more AI-enabled devices, a lot more connected devices. And that's why we're going to need a lot more data centers in the future.”

If that's true, investors who buy Nvidia now may not be missing out entirely.

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