Key Points

A few earnings reports in July could validate Nvidia's growth outlook.
The stock is not overly costly based on projected earnings.
10 stocks we like better than Nvidia

The world's largest company by market value, Nvidia, has encountered some turbulence lately. Its shares reached a peak in May but have slipped roughly 17% since that point. Such a drop is meaningful and prompts investors to ponder the arrival of the next upward move.

I see several triggers later in July that may send Nvidia shares surging toward record levels, so investors should consider adding shares ahead of any such move.

Image source: Getty Images.

The coming month will show the AI expansion remains robust

Nvidia produces graphics processing units along with supporting items for its high-performance computing platform. GPUs remain the preferred option for handling AI tasks, and Nvidia holds dominant share in data center GPU sales. A clear link exists between rising data center outlays and Nvidia revenue, a pattern expected to strengthen as facilities move from building expenses to hardware purchases.

This year the four major AI cloud providers intend to allocate about $650 billion to data center investments. Next year Nvidia projects the same group will exceed $1 trillion in spending.

This substantial rise should lift Nvidia sales in turn. During July each of the four providers will release results, likely featuring updates on AI investments and returns. I will monitor all, yet the most important is Microsoft whose fiscal year closed June 30. It will offer FY 2027 spending guidance, and a sharp increase could affirm the case for Nvidia shares. That may drive the stock back to highs, which is why I view Nvidia as attractive at present.

A further notable update will arrive from Taiwan Semiconductor Manufacturing Company, Nvidia's main chip maker. Strong AI-related growth at TSMC would support the view that Nvidia is performing well.

I expect both firms to deliver solid results and upbeat forecasts that could lift Nvidia shares. Even without that, Nvidia will report in late August and should post another strong quarter since client spending patterns have not changed.

On valuation, Nvidia trades at 21.7 times forward earnings, matching the S&P 500 multiple.

NVDA PE Ratio (Forward) data by YCharts

Taken together these factors make Nvidia appear attractively priced, and I believe it merits purchase now.

Should you purchase Nvidia shares today?

Before buying Nvidia, note the following:

The Motley Fool Stock Advisor team recently named the 10 top stocks for investors to own now, and Nvidia did not appear. The selected names may deliver substantial gains ahead.

Recall that Netflix joined the list on December 17, 2004. A $1,000 investment then would now be worth $409,970. Nvidia itself was added on April 15, 2005, turning $1,000 into $1,200,223.

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Keithen Drury holds stakes in Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool holds positions in and recommends Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool maintains a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.