Nvidia's stocks have been falling in the past few months. Investors should hold on.

Currently $NVIDIA (NVDA.US)$ The stock price has fallen to $116, down 14% from the historical high set in June. During the summer decline, the lowest stock price dropped to $98, a 38% decrease. Nevertheless, the stock price has still increased nearly tenfold in the past five years.

But investors should not rush to sell: research shows that a stock like Nvidia experiencing such a decline is normal and expected, as its stock price has experienced exponential growth.

Several factors have collectively led to the decline in the stock price of this leading artificial intelligence enterprise. When Nvidia's stock price reached $135, investors locked in profits by selling. From $Advanced Micro Devices (AMD.US)$ The emerging competition of chip manufacturers threatens the sales of NVIDIA and makes the relatively smaller AMD a more attractive choice at this time. Meanwhile, although the demand for AI chips is rapidly increasing, everyone knows that the growth of all chip manufacturers will slow down in the coming years.

This is not the end of Nvidia's brilliant journey. For rare stocks that have experienced explosive growth, periodic large declines are completely normal. According to Trivariate Research's analysis of 84 stocks that have grown tenfold in five years, historically, the average maximum drawdown of these stocks is 48%.

The most severe sell-off is not worrisome. Among the 84 stocks identified by Trivariate, the largest drawdown is reached in over three years at 89%. But this stock is an exception; the rise of GameStop is not due to the company's fundamentals. In fact, its earnings have been shrinking, and the tenfold return at the beginning of 2021 was driven by Reddit (RDDT.N) and meme stock frenzy. $GameStop (GME.US)$ Such prospects make NVIDIA more like

Nvidia is completely different from GameStop. According to FactSet's analysis, analysts still expect this chip company to achieve double-digit annual revenue growth over the next few years. Nvidia's stock is currently trading at a lower multiple of short-term earnings expectations, so sustained revenue growth could drive the stock price up.

This such prospect makes NVIDIA more like $Tesla (TSLA.US)$ In the five years leading up to May 2017, Tesla's stock price has increased by over ten times. The demand for electric vehicles, much like today's chip demand, is experiencing explosive growth. During those five years, Tesla's stock experienced a maximum drawdown of 50%, lasting for a year and a half until February 2016. Since then, the stock price has increased by 20 times. Yes, there has been emerging competition in the electric vehicle sector, but the overall industry growth still favors Tesla.

Perhaps NVIDIA also has a similar future. Just need to hold patiently and wait for long-term returns.

Editor/Somer