The king of GPUs is killing it in the stock market.
Nvidia, (NASDAQ: NVDA) the technology company best known for making incredible graphics cards, has pumped their share price from around $100 in January to more than $200 as of November 2017.
Gaming is good
The driving force behind the company’s incredible 2017 performance is the revenue from gaming, which has grown by 50% between the first and third quarters of the year. The money earned from this segment is nearly 60% of all revenue. Nvidia’s graphics chips are in strong demand.
The next biggest segment by revenue for Nvidia is their datacenter segment, and it has grown immensely. At the end of 2016, the company was bringing in $246 million from this area (Q3). Fast forward nine months and revenue has grown to $500 million (Q3 2017). That’s massive!
The growth here is driven primarily by the expansion of the cloud computing market. It’s also projected to continue growing so you can expect Nvidia to continue crushing it in this domain if they stay sharp.
Where are the brakes?
For now, it seems like nothing can hold Nvidia back.
The global trend towards more artificial intelligence and more computing power means that Nvidia is well-placed. It has some of the best technology, which means people are going to want it. Nvidia powers the Nintendo Switch, which launched this year and Waymo and Google have already shown a preference for Nvidia chips in their self-driving cars and when that market eventually booms, Nvidia is going to be right along for the ride.
One thing to consider is that it may be tough to sustain such incredible growth, the likes of which they have seen this year, but one would expect them to still go strong regardless.
The other thing is that their competitors are gunning for them. Intel is partnering with AMD to try to and dethrone Nvidia. These two companies definitely have the resources to do so, but right now Nvidia has the advantage. Their offering is just way ahead of the curve, according to CEO Jensen Huang, and Intel is apparently two years away from producing a chip that can rival what Nvidia has to offer.
Should you buy it?
This is always a difficult question to answer.
If you invested in Nvidia back in 2008, your total return would be in the neighborhood of 4000%. That’s when Nvidia was trading around $6 a share, and obviously, hindsight is 20/20, but the sentiment that Nvidia has seen its best days is hard to shake off. At $200 per share, where can it go from here?
You could have said the same thing about Berkshire Hathaway in 1990 when it was trading for $7000 per share. That seems like a crazy high price with nowhere else to go but today shares of the giant conglomerate are worth more than a quarter million dollars apiece. A share price is just a number, and we have to evaluate Nvidia on whether it can continue growing.
That is much harder, but with the rise of artificial intelligence and driverless cars on the horizon, it doesn’t seem unlikely for Nvidia to be able to capitalize on this trend. With even a small slice of the automobile market, Nvidia could see a business segment emerge that could rival their gaming segment. At that point, you’ll wish you had bought shares in 2017.