Like many other growth stocks, Nvidia (NASDAQ:NVDA) has kicked off the new year with a bang. Since the first trading day of 2023, NVDA stock has rallied by over 21%. Numerous factors, not just the overall direction of the stock market, have played a role in the chip maker’s big jump in recent weeks.

Yet while you may be getting the fear of missing out on a Nvidia recovery, I wouldn’t suggest hastily jumping into shares at this point. Although sentiment has a quick shift back toward positive, it’s not as if the issues behind NVDA’s sharp price decline during 2022 are behind it.

Namely, demand in several of the company’s key end-user markets remains soft. Although things may turn a corner within the next few fiscal quarters, something like another weak earnings report could sour enthusiasm for shares, pushing them back again to lower prices.

NVDA Stock and its Recent Rally

Although macro-related worries are still elevated, market optimism seems to be inching higher. The latest Consumer Price Index (or CPI) number, which indicated a further slowdown in inflation, may signal that the Federal Reserve may ease on interest rate hikes, and possibly make the much-awaited “Fed pivot,” before the end of 2023.

This has likely played a role in the strong performance of NVDA stock as of late, but it’s not the sole factor at play. According to analysts at Bank of America, enthusiasm for the stock is also on the rise thanks to both growing excitement about the company’s prospects in the artificial intelligence (or AI) space and rising hopes of a recovery in the gaming market.

I agree that Nvidia has strong potential to profit from the rise of AI. In a recent article on the stock, I discussed the company’s big move into self-driving technology. NVDA also has indirect exposure to the possible rise of AI-powered chatbot platforms like ChatGPT.

However, when it comes to a gaming market recovery, I’m less optimistic one will arrive immediately. Furthermore, continued weakness in gaming, along with other end-user markets, could cause this stock’s recent rally to reverse course.

A Rebound in Demand May Arrive Slowly

Optimistic traders may start pricing in a gaming chip recovery into NVDA stock, but check out recent headlines about gaming chip demand. These headlines suggest that the situation has yet to improve.

For instance, according to a recent article in Barron’s, the reception for Nvidia’s latest generation of graphics card has been mixed. Its most recently-released model, the RTX 4070 Ti, hasn’t exactly been flying off the shelves. That’s not all. In a recent research report on chip stocks, analysts at KeyBanc touched on continued demand headwinds for Nvidia.

Due to the demand slowdown, driven in large part by a slowdown in China, around $2.5 billion in gaming revenue previously expected during Nvidia’s first fiscal quarter (ending April 2023) will not arrive until its second fiscal quarter (ending July 2023).

Demand in other key end-user markets is expected to stay in slowdown mode during the near term as well. These markets include personal computing, as well as cloud computing.

All of this points to more disappointment ahead, when the company reports earnings for its fiscal fourth quarter (ending January 2023) next month, and when the company reports results for the upcoming quarter later this year.

The Verdict

In February, if Nvidia falls short of consensus when it reports quarterly earnings (like what happened last quarter), today’s optimism for the stock could give way to renewed pessimism.

Sell-side forecasts continue to call for a big earnings rebound this fiscal year. However, if more signs emerge that this rebound will not really start to take shape until next fiscal year, this stock could again get stuck in a slump for quite some time.

For investors holding Nvidia as a long-term position, this isn’t necessarily a reason to make an exit. As in past cycles, the chip market will recover, and the aforementioned AI-related catalysts point to continued growth in the coming years.

For investors considering NVDA stock today, however, it’s best to take your time before entering a position. Chances are, a more opportune entry point will emerge this year.

NVDA stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.