Nvidia Corporation (NASDAQ:NVDA) has until recently defined itself as a visual computing company, underscoring its roots as a designer and builder of graphics processing units (GPUs). But it’s increasingly “what’s next” that’s powering the breakneck drive in NVDA stock.
In the early days, NVDA was up against the major players — Intel Corporation (NASDAQ: INTC), Qualcomm, Inc. (NASDAQ: QCOM), Texas Instruments (NYSE: TXN) and more — and differentiated itself in this “commodity” business by building high-end GPUs that performed much faster and with better quality than the standard GPUs built by the big chip makers.
The big makers didn’t really see much reason to spend a lot of time and energy on GPUs since they are more volume suppliers. Sinking tons of money into building out this sector didn’t make much sense.
In the meantime, NVDA kept at it. For 18 years now.
Granted, the stock is up an average of about 510% a year over that period but its real growth has been in the past couple years.
Finally, the new wave in tech has brought with it the ability to do many more things as processing speeds have grown and memory can interact with processors in near real-time.
Now concepts like virtual and augmented reality, smart cars, autonomous vehicles, the Internet of Things, cloud computing and Big Data are all vibrant expanding industries. And these are the market that will send NVDA stock on to much higher levels from here.
While there are many focused companies that end up in the dust bin of history because they just missed a new trend, or caught a piece of just one, Nvidia hit all of them out of the park.
Some people talk about its valuation — most analysts say NVDA needs to see a compounded annual growth rate (CAGR) around 50% a year for the next three years. The fact is, that rate is actually realistic.
For example, according to a Business Insider Intelligence report, the self-driving car market is expect to grow at a CAGR of 134% through 2020.