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Harsh Jain
Harsh Jain
Articles (219) 

Is Nvidia a Buy?

The chip manufacturer's ongoing growth initiatives will bear fruit for years

February 13, 2018 | About:

2017 was a great year for Nvidia Corp.’s (NASDAQ:NVDA) shareholders as its stock price jumped more than 80% last year.

The company’s performance last year was driven primarily by the strong sales in its gaming division. Apart from this, another significant driver was deep learning. The revenue from Nvidia’s artificial intelligence segment now accounts for almost 20% of its overall revenue. 

Nvidia reported better-than-expected fourth-quarter results on February 8. Shares of Nvidia were up almost 9% in the next trading session after it exceeded analyst bottom-line and top-line estimates.

For the quarter, the chip manufacturer posted record earnings per share of $1.72, surpassing the analyst’s estimate by a wide margin of 56 cents. Revenue came in at $2.91 billion, representing a surge of 34.1% year over year.

Although the majority of Nvidia’s growth comes from its gaming segment, it is aggressively trying to expand its footprint in the data center industry. According to a forecast report from Technavio.com, the worldwide data center market is projected to reach $32.3 billion by 2020, representing a compound annual growth rate (CAGR) of 11%.

The continued rise in cloud computing, as well as digitization, has necessitated the construction of data center facilities globally. At present, the top two cloud computing platforms -- Windows Azure and Amazon Web Services (AWS) -- in the United States are powered by Nvidia’s technology.

Also, the chip manufacturer recently signed a deal with Chinese tech giants Baidu (NASDAQ:BIDU), Alibaba (NYSE:BABA), and Tencent to supply its artificial intelligence graphics processing chips. Each of these Chinese tech companies will be upgrading their data centers to Nvidia’s latest Volta-based chips.

The chip manufacturer will expand its GeForce NOW Subscription Service, which allows users that cannot afford high-end PCs to play games on the cloud platform. GeForce NOW delivers outstanding performance on demanding new AAA rated games.

Moving onward, Cryptocurrency mining has become one of the hottest trends nowadays. High-end graphics processing units (GPU) are used to mine several Cryptocurrencies. This also appears to be a big reason why Nvidia has seen its sales climb sharply over the past few quarters.

The cryptocurrency market is currently facing several headwinds, but if it manages to turn its fate around, it will represent a significant opportunity for Nvidia going forward.

Several analysts raised their price target on Nvidia after seeing its robust fourth-quarter result. Mizuho Securities increased its target from $240 to $266 per share keeping in mind Nvidia’s automotive wins with new partners. The chip manufacturer’s self-driving cars platform, called DRIVE PX2, is currently being used by more than 300 companies.

Summing up

The chip manufacturing company is pursuing various high growth markets, which will send its stock higher.

Although Nvidia’s stock price has gained more than 800% over the past two years, it still has plenty of room to run higher considering its growth prospects. However, it is not the right time to buy the stock as it is up almost 20% year to date. Hence, I would suggest shareholders wait for a dip before initiating a position in the stock.

Disclosure: No positions in the stocks mentioned in this article.


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