In the last three months, shares of Nvidia Corporation (NASDAQ:NVDA) have been trending between the $95 – $110 range. Valuations are unfavorably high: the stock trades at a 41x P/E and a 31x forward P/E. Conversely, chip giant Intel Corporation (NASDAQ:INTC) is investing its business in automated driving technology, pays a dividend yielding nearly 3% and trades at a 16x P/E.
Nvidia’s competitor, Advanced Micro Devices, Inc. (NASDAQ:AMD) reported quarterly results that failed to meet lofty expectations. Its shares fell around 25% on the day.
When Nvidia reports quarterly results after the market closes on May 9, investors will look closely at its graphics cards sales in its first quarter.
First-Quarter Expectations for NVDA Stock
The first quarter is usually seasonally the weakest. Consumers bought PC and game console hardware the quarter before, during the holidays. Businesses spent whatever remained in the budget by year-end. Still, PC sales may have picked up in the quarter. Intel refreshed its CPUs with Kaby Lake processors. AMD updated its desktop CPUs with Ryzen.
Customers may have paired the upgrade with an Nvidia graphics card. HP Inc (NASDAQ:HPQ) is an example of a computer supplier where seasonality did not have any impact on quarterly results. In its first quarter, HP reported revenue growing 4% to $12.68 billion.
Unlike AMD, whose shares face a short float of 14.5%, bearishness on Nvidia’s stock is low at 4.8%. NVDA is highly diversified, investing its business in growing markets. AMD relies heavily on the GPU and PC market for growth.
But NVDA is making progress in AI (artificial intelligence) and self-driving cars. Revenue growth from these new markets will insulate it from a slowdown in GPU sales. Car companies like Volvo have Nvidia chips powering the self-driving cars. On its conference call, the CEO said it expected these vehicles will be available on the road this year. The backend systems that power the neural networks for this technology are Nvidia’s Tesla GPUs.
Nvidia has several SKUs of Tesla Inc (NASDAQ:TSLA) processors that high-performance computers need. These chips cover many markets:
“There’s the Tesla processors used for high-performance computing, and it has FP64, FP32, ECC, it’s designed, and has CUDA of course, and it has been optimized for molecular dynamics, astrophysics, quantum chemistry, fluid dynamics, the list goes on and on. “
Source: SA Transcript
Artificial Intelligence and the Nintendo Switch
Nvidia’s end-to-end computing platform suits designing for AI. AI requires machines having the ability to deep learn and requires massive amounts of computational power.
Nvidia is developing neural networks powered by programmable GPUs. Clearly, Nvidia’s growth prospects extend beyond PC graphics card. Fundamental changes in the global technology environment are shifting demand for computing solutions towards AI.
Nvidia is at the forefront of this shift.
Strong adoption for the Nintendo (OTCMKTS:NTDOY) Switch should add to Nvidia’s bottom line. Last month, sales of the handheld console outpaced that of Sony Corp (ADR)’s (NYSE:SNE) Playstation and Microsoft Corporation’s (NASDAQ:MSFT) Xbox. As Nintendo rolls out popular game titles on its platform, sales will continue growing.
Though revenue from gaming is around 50%, shareholders still benefit from Nvidia making money in this hot market.
Takeaway on NVDA Stock
Nvidia is an attractive growth stock. Its share price may scare value investors, but those who want exposure to the computer GPU, AI and autonomous driving technology space should consider holding this stock.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
