NVIDIA’s (NVDA) valuation may be a bit stretched right now, but given the company’s prospects, I think the stock deserves to trade at a premium. NVIDIA has its presence in many high growth markets, and since I have covered most of those markets in my previous articles, I’ll be focusing on a new one in this article.
Artificial Intelligence
In the case of cloud computing and machine learning, NVIDIA accounts for the most significant partner of IBM (IBM, Financial). NVIDIA’s Tesla GPUs are used by IBM in its Power CPUs in cloud-based enterprise data center systems. Last November, IBM publicized that coupling NVIDIA’s K80 with its Power CPUs permits Watson to reply for questions 1.7 times quicker than prior systems.
The company’s high-end GPUs offer IBM's Power CPUs with that enhancement just because its GPUs are fundamentally superior at performing and handling machine learning actions equated to stand-alone CPUs are.
On the other hand, the company also claimed that its Tesla K80 are more efficient and can run crucial science applications two-to-five times quicker compared to Intel's Xeon Phi 7120 CPU. Due to this, Facebook has also been using NVIDIA’s Tesla M40 GPUs in its Big Sur computing platform over the previous year.
Furthermore, the revenue generated by the company’s data center segment surged 63% in the previous quarter and accounted for approximately 11% of its overall revenue.
Giant is back again
NVIDIA is definitely a leader in the graphics cards market by holding almost 80% of the market share. Recently, NVIDIA introduced its new Pascal architecture and several graphics cards based on Pascal. The company has observed strong sales regarding its Pascal based graphics cards.
However, the company is on its way to launch a new graphics card based on its GP102, known as Titan X, the same name that the company used for its previous generation's most popular Titan card.
Furthermore, the company publicized that its new Titan X includes 3584 CUDA cores, a considerable surge compared to its previous generation Titan X, apparently built on TSMC’s 16nm manufacturing technology. This new Titan X will be 60 percent faster than the older Titan X, and will be priced at $1,299. Apart from these, new Titan X can only be purchased from NVIDIA and from select system builders.
Conclusion
With a trailing P/E of over 40, NVIDIA is definitely overvalued. However, since the company is gaining traction in several high-growth markets, I expect it to grow into the current valuation in the coming years. Thus, I think NVIDIA is a hold for now.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
