Nvidia Corporation (NASDAQ:NVDA), the developer of graphics semiconductor technology, just continues to reap the fortunes of its engineering prowess. NVDA stock is surging in Thursday’s after-market trading, yet again setting all-time highs with yet another Street beat.
For its second quarter, Nvidia’s revenues jumped to $1.43 billion for 24% year-over-year growth — the fastest pace in nearly five years — and earnings came to 40 cents a share. Analysts were looking for $1.35 billion on the top line and earnings of 37 cents a share. NVDA operating expenses came down about 9 to $509 billion, and gross margins headed higher by 290 basis points to 57.9%.
Nvidia’s guidance also was promising, with the company projecting third-quarter revenues of $1.68 billion, which topped expectations for $1.45 billion with room to spare.
The company’s core graphics technology has proven to be extremely versatile thanks to applications that go well beyond gaming. For example, NVDA has been getting a nice lift from machine learning, artificial intelligence (AI), data center applications and self-driving autos. All these categories represent billion-dollar opportunities and are major strategic initiatives for mega operators like Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB) and Microsoft Corporation (NASDAQ:MSFT).
Other highlights from Nvidia earnings:
- Launch of the first four members of the Pascal gaming GPUs, which have set records for speed and power efficiency. The technology has also been critical for virtual reality applications.
- Release of the Tesla Motors Inc (NASDAQ:TSLA) M10, which allows for much more efficient virtualization in the datacenter.
- Start of a research program for advance self-driving technology with New York University’s deep learning team.
The result? A 5% surge in NVDA stock in after-hours trading to new all-time highs above $61 per share.
NVDA Stock Keeps Charging Ahead
Shares have already posted 80% gains in 2016 before this evening’s post-earnings beat. That has meant serious pain for those shorting NVDA stock, and there are more than a few bears — roughly 12% of Nvidia’s float is sold short.
But it’s getting hard to deny that the company’s success is more than just a temporary thing. In the latest quarter, the core gaming revenues increased 18% to $781 million. Yet the newer categories were the stars, with data center revenues soaring 110% to $151 million and automotive jumping 68% to $119 million.
NVDA has gotten significant traction out of its Tegra CPUs, which help power connectivity for several automakers. For instance, Nvidia powers the infotainment systems in all Audi cars, displays in Tesla Motors Inc (NASDAQ:TSLA) Model X and Model S vehicles, and audio and information systems in Honda Motor Co Ltd (NYSE:HMC) units. Nvidia also can be found in BMW’s iDrive, and Audi’s self-driving car will use Tegra X1 technology.
Connected cars are a particularly juicy opportunity for Nvidia, for a number of reasons. For one, there’s the sheer potential size of the market — PWC sees it nearly quadrupling to $126 billion by 2020. Also, Nvidia faces few legitimate rivals in the space. NVDA’s main competitors here are Mobileye NV (NYSE:MBLY) and NXP Semiconductors NV (NASDAQ:NXPI).
It’s true that the valuation on NVDA stock has gotten stretched, with the price-to-earnings ratio at a nose-bleed 51X. By comparison, ON Semiconductor Corp (NASDAQ:ON) is at 27X and Xilinx, Inc. (NASDAQ:XLNX) sports a multiple of 24X.
But for investors, the valuation may not be much of a consideration. If anything, NVDA stock looks like it’s becoming a pure momentum play.
And why not? Nvidia is at the forefront of some of the highest-growth markets in tech — and there are no signs of anything slowing down soon.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He also operates BizDeductor, which provides tax services for the self-employed and gig workers of Uber, Lyft & Airbnb. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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