I have been an NVIDIA (NVDA, Financial) bull for a long time. However, I have to be honest. NVIDIA has surpassed even my most bullish estimates. I recently recommended investors book profits due to NVIDIA’s high valuation, but the stock has continued defying gravity and is slowly inching toward the $50 mark.
NVIDIA recently launched its two new graphics cards, GTX 1080 and GTX 1070, based on its latest highly improved Pascal architecture. During the launch, NVIDIA claimed that the company has put a lot of effort into improving the efficiency and performance of GTX 1080 and GTX 1070. The company also said that these cards will deliver even more superior performance as compared to its predecessors as well as Titan X.
As per review from TechPowerUp, the company’s GTX 1070 graphics processor delivers the same performance as the company claimed during its launch. It is also considerably cheaper as compared to $1,000 Titan X and is available in the market for $379.
On the other hand, GTX 1070 also performs better than two combined GeForce GTX 970. Furthermore, the company perceives robust demand for GTX 1070, as it’s sold out on the company’s own website GeForce.com. At present stage, GTX 1070 sees comparatively greater demand than GTX 1080.
In addition, the company’s new graphics cards GTX 1080 and GTX 1070 has started paying off, whereas peer Advanced Micro Devices (AMD, Financial) has yet to pose a significant competitive threat. NVIDIA will likely benefit from hitting the market before Advanced Micro Devices and will gain an unassailable lead in the market.
Automotive goal
At present stage, NVIDIA is working with approximately 80 companies working on autonomous vehicles. The company also detailed that it is not only supplying chips to companies for their vehicles but is also aggressively working with them to build autonomous cars.
The company’s objective in its automotive chip business is to grasp a leading position in the industry and develop full-fledged platforms instead of just selling silicon chips. As NVIDIA’s automotive business conveys gross profit margins considerably lesser than the business average, this platform will allow the company to capture value that is more than just a chip trade, eventually boosting the melded gross profit margins of its automotive business.
Conclusion
While I still love NVIDIA as a company, I am neutral on the stock due to its high valuation. Investors have priced in a lot of growth in NVIDIA’s current share price, and the stock will likely pull back about 10% to 15% in the future, which would be the ideal entry point for new investors.
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