Why I wouldn't buy Nvidia stock despite a 60% drop from all-time highs

Nvidia shares plunged nearly 15% last week, hitting a new local low after the company disclosed that the US government ordered restrictions on shipments of a select portfolio of high-margin chips to China. The announcement comes after Nvidia had already warned of slowing demand for its gaming products.

In my opinion, Nvidia $NVDA stock is overvalued over the long term, as evidenced by its average P/E ratio over the past 5 years of nearly 58 . And although NVDA stock is down about 60% from its all-time highs late last year, I would venture to say that there is still some excessive valuation premium that needs to be corrected in order for investors to enjoy an attractive risk-reward ratio.

In the last quarter, Nvidia provided an outlook that was much lower than analysts expected. The chipmaker has faced a number of challenges in recent months, including declining demand for its gaming and professional visualization products, macroeconomic cost pressures and supply…