Standing by a battered Nvidia

• Buy 775 shares of Nvidia (NVDA, news, msgs) at the market open.

Strategy Lab is MSN Money's stock-picking challenge. To learn more about the game and the contenders, click here.

Not only is this round's Strategy Lab title impossibly out of reach for me after the absolute pounding Nvidia (NVDA, news, msgs) shares are taking (down about 30% as I write this on Thursday), my goal of beating the market is in serious jeopardy.

After all, I found Nvidia's valuation attractive enough to identify it as my "top pick" going forward during the Strategy Lab panel discussion at the World Money Show in Las Vegas.

Well, so much for that -- at least with regard to it being a top performer for the remainder of this Strategy Lab round.

For each of us as investors, it's not a matter of if we get one colossally wrong from time to time, but only a matter of when. While I still like Nvidia's long-term prospects, in the short term this call can't be described as anything other than a real stinker.

But I'm buying more.

Glutton for punishment? Trying to catch a falling knife? Sending good money after bad?

Maybe.

But then again, let's look at Nvidia's announcement.

Bad numbers, but . . .

Nvidia stated that it expects second-quarter revenue to be in the $875 million-$950 million range, which is about 14%-20% below the $1.1 billion that analysts seem to have been expecting. If that weren't bad enough, Nvidia has also announced that it will be taking a $150 million-$200 million one-time charge (which is about 19%-25% of fiscal 2008 earnings) related to warranty, return and repair of certain notebook-computer graphics processors.

Certainly this isn't good news, and certainly the market is correct in discounting the shares. But I think the market is overreacting here, as the market is prone to do, especially during times of uncertainty. While it may seem unrelated, on the radio this morning I heard that General Motors (GM, news, msgs) shares were trading at levels not seen since the Eisenhower administration (I haven't independently confirmed this, nor investigated it.)

Against that kind of a backdrop, the market's tendency for short-term overreactions is magnified significantly -- especially on the downside.

I just can't seem to fathom how the entire discounted future earnings of Nvidia are suddenly worth 30% less than they were a day before, based on a 14%-20% decline in one quarter's expected revenue and a one-time charge that amounts to 19%-25% of earnings. We now have a company that grew revenues at a compound annual growth rate of 22.4% per year from fiscal 2004 through fiscal 2008, and grew earnings even faster, trading at a price-earnings ratio not even in the low teens.

The market seems to be expecting that these troubles for Nvidia are permanent. If there is one thing I know for sure about this market (or any other), nothing ever is permanent. I think patient long-term investors will be handsomely rewarded in the coming years, so I'm increasing my Strategy Lab position.