Being a long-term NVIDIA (NVDA, Financial) bull, I am pleased by the company's performance over the last few years. NVIDIA has managed to grow and beat estimates despite the weak PC sales environment. While there are many positives going forward, I think the stock may have run its course and has limited upside potential at this point in time.
A leader in the GPU market
In the GPU market, NVIDIA manufactures graphics cards, chiefly competing against Advanced Micro Devices (AMD, Financial). But seeing the company’s recent performance, it seems like NVIDIA is no longer simply a seller of chips.
The company has been creating an ecosystem around its graphics cards for many years. NVIDIA’s most popular software suite, GeForce Experience, offers a wide range of features for GeForce owners. GeForce Experience users list has surged to 76 million users. GameWorks, NVIDIA’s suite of code libraries and tools targeted at game developers, has successfully managed to enter in the world of several epic PC games, delivering advanced visual effects boosted especially for the company’s graphics cards. Apart from this, NVIDIA’s Shield devices such as Android TV console have also supported the company as it allows GeForce owners to stream PC games to TVs.
The launch of the tremendously successful GTX 970 in late 2014 together with the software effort has provided a boost to NVIDIA in the graphics-card market. Throughout the third quarter 2015, the company shipped more than 80% of distinct graphics cards, with Advanced Micro Devices in second position.
At the end of 2015, NVIDIA's accounted for around 80% market share, with the other 20% going to Advanced Micro Devices. The company’s tactic of creating a platform, introducing switching costs that attracted the consumers to shift from Advanced Micro Devices’ graphics cards to NVIDIA GeForce, has so far paid off pleasantly for NVIDIA.
DRIVE PX platform
Self-driving cars are a new concept and will take some time to grow. However, NVIDIA’s DRIVE PX platform is very efficient and well-positioned to deliver the essential computational horsepower. This deep-learning platform is very powerful and supports two discrete GPUs grounded on the company’s approaching Pascal architecture, as well as two next-generation Tegra SoCs.
DRIVE PX 2 is designed in a way to perform 8 trillion single-precision floating-point calculations per second. This type of capability is essential to track an enormous number of object, from other cars to pedestrians, and to create a plan grounded on that information.
Though the future of self-driving cars is uncertain, NVIDIA’s DRIVE PX 2 platform is exclusive, and with the company currently working with around 70 companies that are evolving self-driving car tech, NVIDIA is laying the preliminaries for what could be a very profitable business.
Conclusion
While I think NVIDIA is a great company, I think the stock is a bit overvalued. With a trailing P/E multiple of over 30, investors should wait for a better entry point despite the multiple positive factors.
