Is Now the Time to Buy Nvidia Ahead of Earnings? Balancing Short-Term Risks and Long-Term AI Growth Catalysts

Nvidia's stock has long been a barometer for the AI revolution, but as the company prepares to report its Q3 2025 earnings, investors face a critical question: Is the current pullback in its shares a buying opportunity, or a warning sign of overvaluation? The answer lies in dissecting the interplay between short-term headwinds—particularly in China—and the company's entrenched dominance in AI infrastructure.

Short-Term Risks: China Headwinds and Valuation Concerns

Nvidia's exposure to China remains a double-edged sword. In 2024, the region accounted for 13% of its revenue, but U.S. export controls in April 2025 slashed potential sales by an estimated $8 billion. While the Trump administration's August 2025 policy shift allowed limited H20 chip exports (with a 15% tax on sales), the damage to market share is evident. Chinese state-linked media continue to scrutinize the H20's security risks, and domestic rivals like Huawei are accelerating their AI chip development.

Valuation skepticism is also mounting. As of April 2025, Nvidia's P/E ratio stood at 58.36x, with a P/S ratio of 29.63, both well above historical averages. Critics argue these multiples are unsustainable, especially as a discounted cash flow model suggests the stock is overvalued by 54% based on 2030 projections.

Long-Term Catalysts: AI Dominance and Strategic Positioning

Yet, these risks must be weighed against Nvidia's unparalleled position in AI. The company's data center segment, which now accounts for 88% of revenue, is expanding at a 154% year-over-year rate. The Blackwell GPU architecture has secured a 98% market share in data center GPUs, while partnerships with cloud giants like AWS and Microsoft ensure a steady pipeline of demand.

The Rubin architecture, set for 2026, promises a 2.5–3x performance leap, further cementing Nvidia's lead. Meanwhile, its CUDA ecosystem—a de facto standard for AI model training—creates a moat that rivals like AMD and Intel struggle to breach.

Valuation Analysis: Justified Premium or Overreach?

Nvidia's high multiples are not without merit. The company's non-GAAP gross margins of 75.7% and operating income growth of 174% YoY highlight its pricing power and operational efficiency. Analysts project 32.8% annual earnings growth over five years, a rate that, if achieved, would justify a P/E in the 40–50x range.

However, the market's current skepticism is partly rooted in near-term execution risks. The transition to Rubin could disrupt short-term margins, and rising R&D costs may pressure profitability. Yet, with $34.8 billion in cash and a $50 billion buyback authorization, Nvidia has the firepower to navigate these challenges.

Investment Advice: A Calculated Entry Point

For long-term investors, the current pullback—Nvidia's stock is down 27.2% from its 2025 peak—presents a compelling entry point. The company's guidance for Q3 2025 revenue of $32.5 billion (±2%) and gross margins of 74.4% suggests strong underlying momentum. A post-earnings dip, if the stock underperforms expectations, could offer a discount to its intrinsic value.

That said, investors should remain cautious. Diversifying exposure to AI infrastructure (e.g., TSMC, which benefits from broader chip demand) and hedging against geopolitical risks in China are prudent strategies. For those with a 3–5 year horizon, Nvidia's strategic moats and AI tailwinds make it a high-conviction buy—provided the company continues to execute on its Rubin roadmap and maintains its software ecosystem dominance.

In conclusion, while short-term risks linger, Nvidia's long-term trajectory remains unshaken. The key for investors is to balance the current valuation premium with the company's ability to sustain its AI-driven growth. For those willing to weather near-term volatility, the rewards could be substantial.