Nvidia: Add On Weakness, Ride The AI Boom

NVIDIA (NVDA) has become the poster child of the AI revolution, but its stratospheric valuation and geopolitical vulnerabilities demand a nuanced approach. For investors seeking to capitalize on the AI-driven semiconductor boom while mitigating risk, strategic diversification is key. This article examines NVIDIA’s recent performance, valuation concerns, and the case for tactical entry points, alongside alternatives like the Invesco PHLX Semiconductor ETF (SOXQ) to balance exposure.

NVIDIA’s Earnings: A Bellwether’s Strength and Weakness

NVIDIA’s Q2 2025 results underscore its dominance in AI infrastructure. Revenue surged to $46.7 billion, a 6% sequential increase and 56% year-over-year growth, driven by its data center segment ($41.1 billion, 56% YoY) and the Blackwell Data Center platform (17% sequential revenue growth) [1][2]. Adjusted earnings per share of $1.05 exceeded expectations, and the company projected Q3 revenue of $54 billion, reflecting confidence in sustained demand [1].

Historically, NVIDIA’s stock has shown a positive response following earnings beats. A backtest from 2022 to now reveals that periods when NVIDIA beat earnings expectations were often followed by measurable price momentum, though the magnitude and duration varied depending on broader market conditions and sector dynamics.

Yet, even this juggernaut faces headwinds. U.S. export controls have forced NVIDIA to write off $4.5 billion in inventory and accept a revenue-sharing agreement with the government to retain 85% of China sales [2]. Meanwhile, China’s $95 billion “Delete America” initiative threatens to erode NVIDIA’s market share in the region, where it derived 13–17% of 2025 revenue [2]. These risks highlight the perils of over-concentration in a single stock and geography.

Valuation Concerns: Justified Premium or Overreach?

NVIDIA’s valuation metrics are stark. Its trailing P/E ratio of 51.3 and P/S ratio of 26.88 far exceed semiconductor industry averages of 35.41 and 4.68, respectively [1][3]. While its 69% revenue growth outpaces the sector’s 12% average, the premium reflects speculative bets on AI’s long-term potential. However, such metrics raise questions: Is the market overestimating NVIDIA’s ability to sustain its growth trajectory, or is the AI boom itself being underestimated?

Strategic Diversification: The Case for SOXQ

For investors wary of NVIDIA’s concentration risk, the Invesco PHLX Semiconductor ETF (SOXQ) offers a compelling alternative. SOXQ holds 30 U.S.-listed semiconductor firms, including NVIDIA (13.35%), Broadcom (10.26%), and TSM (8.00%), with a low expense ratio of 0.19% [1][2]. Its diversified portfolio spans design, manufacturing, and distribution, balancing high-growth AI players with stable manufacturing firms like TSM and Intel [2].

SOXQ’s year-to-date gain of 13.39% as of mid-2025 reflects the sector’s AI-driven momentum, particularly in data-center chips [3]. By spreading risk across the semiconductor value chain, SOXQ mitigates exposure to geopolitical shocks, such as U.S.-China trade tensions or supply chain disruptions. For instance, while NVIDIA’s China sales are constrained, TSM’s AI-related revenue is projected to jump from $26 billion in 2025 to $46 billion by 2027 [3], illustrating the sector’s broader growth potential.

Sector Outlook: Growth, Innovation, and Geopolitical Risks

The semiconductor industry is on track to generate $705 billion in revenue in 2025, a 11.2% increase from 2024, driven by AI data-center demand [4]. NVIDIA’s CFO estimates AI infrastructure spending could reach $3–4 trillion by 2030 [1], but this optimism must be tempered with caution.

Geopolitical risks loom large. The U.S. CHIPS Act ($52 billion) and EU Chips Act (€43 billion) are reshaping supply chains, while China’s push for self-reliance threatens to fragment the market [4]. Companies are adopting “multi-fab” strategies to hedge against disruptions, and investors should prioritize firms with diversified manufacturing footprints [2].

Tactical Entry Points: When to Add

NVIDIA’s recent pullback—despite strong earnings—presents a tactical buying opportunity. However, investors should consider dollar-cost averaging into the stock rather than committing all at once. Pairing NVIDIA with SOXQ or similar ETFs can create a balanced portfolio that captures AI growth while reducing overexposure to a single company or region.

For example, a 60/40 split between NVIDIA and SOXQ would leverage NVIDIA’s AI leadership while diversifying into the broader sector. This approach also benefits from SOXQ’s lower expense ratio and broader exposure to innovations like TSMC’s 2nm node and Intel’s 18A process [4].

Conclusion: Balancing Boldness and Prudence

NVIDIA’s role as an AI bellwether is undeniable, but its valuation and geopolitical risks demand a measured approach. By strategically allocating to NVIDIA on weakness and pairing it with diversified ETFs like SOXQ, investors can ride the AI boom while mitigating the sector’s inherent volatility. As the semiconductor industry navigates a $3 trillion AI opportunity and $250 billion in global subsidies, tactical diversification will be the key to long-term success.

**Source:[1] NVIDIA Announces Financial Results for Second Quarter [https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-second-quarter-fiscal-2026][2] Best semiconductor ETFs in 2025: Top chip companies for ... [https://finance.yahoo.com/news/best-semiconductor-etfs-2025-top-125500125.html][3] Invesco PHLX Semiconductor ETF (SOXQ) Holdings [https://finance.yahoo.com/quote/SOXQ/holdings/][4] Global Semiconductor Industry Trends and 2025 Outlook [https://ts2.tech/en/global-semiconductor-industry-trends-and-2025-outlook-ai-boom-advanced-nodes-and-geopolitics-report-june-27th-2025/]