Over the past five years, the stock price of NVIDIA Corp. (NVDA, Financial) has surged more than 550% and currently trades just below its all-time high. The company has managed to beat consensus estimates in the past nine out of 10 quarters on both the earnings and revenue fronts.
Recently, NVIDIA reported robust third-quarter results that suggest with each passing quarter, the company’s financial performance is getting better. In the third quarter of 2016, the company reported bottom line of 94 cents, 37 cents more than the estimates, whereas top line came in at $2 billion, beating the consensus by $310 million. Most significantly, that figure represents a whopping surge of 54%.
On the other hand, the graphics card giant escalated its dividend by 22% to 14 cents. As a matter of fact, NVIDIA’s gaming business played a very significant role in the previous quarter as the revenue produced from that segment increased to $1.244 billion from $761. This is due to the launch of its new graphics card architecture, Pascal.
NVIDIA made a smart move by launching new Pascal-based graphics cards for both notebook and desktop devices, which helped the company to futher fortify its leading position in the gaming industry.
Apart from this, the company detailed that the revenue generated from its data center business reached $240 million, a surge of $158 million compared to the year-ago period. After rising 193% in the prior quarter, data center turned into the fastest-growing segment of NVIDIA’s overall business.
The staggering growth in the company’s data center business is mainly due to the progress in artificial intelligence, which is igniting demand for supercomputing components. Not only this, the company’s automotive segment is also growing at a rapid rate as many automakers are working on autonomous cars.
NVIDIA’s Drive PX 2 platform, specifically designed for autonomous cars, is currently being used to power Tesla’s new autopilot system. Keeping this in mind, it appears NVIDIA is in a great position to gain huge benefits in the imminent years.
On the other hand, NVIDIA’s foremost rival, Advanced Micro Devices (AMD, Financial), has also performed very well this year. However, one thing that makes NVIDIA a better option is its diversified revenue stream. Moreover, the company has massive free cash flow that allows it to spend largely on research and development.
Summing up
Although NVIDIA’s stock price surged 30% after reporting its third quarter, it looks like the company still has plenty of room for growth. The company has been expanding its reach in several markets and its core business has also seen strong growth. Considering the aforementioned figures, I expect NVIDIA to continue moving higher in the imminent years.
Disclosure: No position in the stocks in this article.
Start a free 7-day trial of Premium Membership to GuruFocus.
