Nvidia: A Tech Powerhouse

Nvidia (NVDA) is one of the world’s leading technology companies, specialising in graphics processing units (GPUs) and AI chips. It is widely known as a leader in data centres and gaming.

The stock ranks fifth among the largest U.S. tech companies. The company is valued at $1 trillion, making it comparable to Apple, Microsoft, Alphabet, and Amazon. Tesla and Meta Platforms hit the $1 trillion level in the past, but they are currently worth less than that. During the pandemic, Nvidia’s business expanded rapidly, leveraging the exceptional growth of gaming, the widespread adoption of cloud computing and crypto enthusiasts’ reliance on its chips to mine digital currencies.

In just two years, Nvidia went from being a major player in designing chips for PC games to becoming a household name. After hitting a 52-week low of $108 in 2022, the stock bounced back with nearly 190% growth in 2023. Over the past decade, Nvidia has grown nearly 11,000%. Its massive growth has had a positive impact on its S&P 500 stock, which has also risen due to the rising popularity of AI chatbots this year. By 2030, the company is expected to surpass $300 billion.

In this article, we will explore some of the significant trends currently affecting NVIDIA’s stock and potential implications for investors.

About Nvidia

Nvidia was founded in 1993. Its headquarters are located in Santa Clara, California. The company operates within the technology sector, primarily within the semiconductor industry.

Nvidia introduced the world’s first GPU, GeForce 256, in 1999. In January of the same year, they went public through an initial public offering (IPO). As a leader in AI chips, the company’s advanced chips play a key role in powering generative AI; this includes the widely recognised ChatGPT chatbot. Today, Nvidia’s GPUs power many of the world’s fastest supercomputers, and also act as accelerators for central processing units (CPUs) made by other companies. Nvidia chips are also used for Bitcoin mining and self-driving electric cars. Nvidia has also demonstrated its strong commitment to metaverse applications.

Nvidia and the chip shortage

By late 2020, there was a global semiconductor shortage. This created major disruptions for consumers and many global technology, auto, and consumer electronics companies that use chips in the products they make and sell. The reasons for the shortage included supply problems due to factory closures and sluggish operations during the COVID-19 pandemic, as well as sudden increases in demand for chips by consumers and companies. Also, there was an unexpected increase in demand from cryptocurrency miners.

This disruption proved to be a great advantage for NVIDIA as the company’s chips are used in gaming consoles and data centers, which led to a huge increase in demand during the pandemic.

What is driving the increase in Nvidia’s stock?

Why is Nvidia suddenly a popular stock on the Nasdaq 100?The answer to this question lies in two letters: AI. Nvidia’s powerful chips are well suited to drive artificial intelligence systems, which are seeing widespread adoption.

The company’s growth potential, largely due to AI, has attracted considerable attention. Analysts expect Nvidia to post earnings of $7.76 a share for the current fiscal year ending in January 2024, reflecting a 132% increase from the previous year, according to S&P Global Market Intelligence.

The shares are currently trading at over 200 times the company’s adjusted profit of the past 12 months. Such a high valuation requires flawless execution. Despite this, analysts maintain a positive outlook on the stock.

“We believe Nvidia’s accelerated computing (chips) stand out to be the biggest beneficiary in an AI-driven world and is the only way for cloud customers and (the) broader enterprise space to create successful large language models at this time,” said CFRA analyst Angelo Zino.

Revenue is expected to grow by 59%

Although Nvidia’s revenue fell 13% compared to the same quarter of the previous year, it was up 19% sequentially over the previous quarter. Analysts predict that Nvidia’s revenue will rise 59% this year, forecasting it to reach $42 billion. This suggests a significant acceleration in top-line growth.

Nvidia stock looks expensive when looking backwards at trailing 12-month revenue and earnings. But the stock’s forward price-to-earnings ratio of 55 doesn’t look expensive considering the company’s rapid momentum. This is particularly important given the widespread adoption of AI across different industries worldwide.

Another reason investors are keen to pay more for Nvidia stock is due to the company’s ability to leverage high-speed computing opportunities across different areas, including chip hardware, systems, software, and data centre networking components. Nvidia’s 2019 acquisition of Mellanox has further strengthened its position. In the most recent quarter, compute and networking revenue rose 21% year over year.

Is Nvidia stock a buy?

Analysts expect earnings to more than double in the current fiscal year, driven by booming sales of chips for data centres and artificial intelligence.

Additionally, Nvidia is expanding into other growth areas like automated electric cars and cloud gaming, while the adoption of the metaverse and cryptocurrencies is likely to further boost demand for Nvidia chips.

However, it is important to consider economic uncertainties and the risk of a global recession which could affect Nvidia’s performance.

NVDA stock has made an impressive comeback, nearly tripling in value so far in 2023. Shares cleared a 419.38 three-week-tight entry in June and are currently within a buy zone. However, they may be due for a pullback.

Nvidia’s latest supercomputer news and earnings have further highlighted its AI leadership.

Where will Nvidia be in 10 years?

Over the past decade, Nvidia investors have seen outstanding returns. Shares of the chipmaker have posted  an impressive annual return of more than 60% during this period, turning a $100 investment into more than $11,500.

The company has made excellent progress over the last decade with the transition from producing graphics cards for gaming PCs into a company to chips that are now used for a wide range of applications. These include data centers, cars, and digital twins. At present, Nvidia is in the middle of the artificial intelligence (AI) boom with chips playing a key role in the development of this technology. Therefore, it is highly likely that the next decade will be rewarding for Nvidia investors. As the technology landscape continues to evolve, monitoring these trends can provide valuable insights. By staying abreast of the latest developments and assessing opportunities and challenges, you can make informed decisions regarding your investment in Nvidia.

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