NVIDIA (NVDA, Financial) performed amazingly well in 2015 as the stock surged over 63%. On top of that, the company has also displayed huge growth this year, recently trading at a market price of $92.20, which signifies a surge of approximately 180% year over year.
Currently, NVIDIA holds a market share of 70%, down from 80% before the launch of its new architecture. Despite losing 10% market share to its foremost rival Advanced Micro Devices (AMD, Financial), the company reported robust third-quarter results.
In the third quarter, the company shared earnings per share of 94 cents, effortlessly surpassing analyst estimates by 37 cents whereas revenue came in at $2 billion, beating the consensus estimates by $310 million and representing an increment of 53.8% year over year.
As a matter of fact, the company’s key strength is in its core gaming business, which accounted for 64% of its overall revenue in the third quarter. Revenue generated from the gaming segment escalated 63% on the back of its new GPU architecture, Pascal, as well as sturdy demand for its desktop and notebook gaming cards.
Moving onward, it looks like the company’s stellar run will endure as the gaming industry in the U.S is projected to rise at a compound yearly growth of 3.6% from 2015 to 2020. On the other hand, the worldwide video game industry is expected to reach $90 billion, which signifies a CAGR of 4.8%.
Apart from the gaming segment, NVIDIA is also putting a lot of effort into diversifyngi its revenue stream. The chips manufactured by the company are also being used in several other rapidly growing markets such as virtual reality (VR), self-driving cars, the IoT and artificial intelligence.
Keeping in mind the company’s long-time dominance amid hard-core video game fans, it has belligerently focused more on the VR as VR appears to be a huge platform for the gaming industry.
Moving toward the self-driving car segment, the company’s latest Drive PX 2 semiautonomous system is formerly used by 80 auto manufacturers and Tier 1 suppliers, and Tesla (TSLA, Financial) recently detailed that it has plans to use the artificial intelligence platform from Drive PX 2 for new versions of its Model X and Model S.
It is true that the autonomous cars market is still in its infancy, but it is projected to grow at a rapid pace, and NVIDIA’s Drive PX 2 platform is a strong plus for the company, bearing in mind the long-term prospects of the automotive industry.
Summing up
NVIDIA currently trades at a price-earnings (P/E) ratio of 46.91, which suggests that the company is overvalued at its present levels. However, the company has successfully proved its bears wrong by delivering consecutive robust quarter results. Despite losing 10% market share back to Advanced Micro Devices, there is still a lot of room for growth moving forward. As a result, investors should continue to hold the stock for more gains in the future.
Disclosure: No position in the stocks mentioned in this article.
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