While some of its chipmaker bretheren have wavered this year, Nvidia Corporation (NASDAQ:NVDA) just keeps on truckin’. A few weeks ago, Nvidia reported quarterly results that easily beat consensus expectations, and raised guidance, which kept NVDA stock on its merry little way to 40% gains for the year-to-date.
Those thinking about taking profits while Nvidia is trading at all-time highs should take their finger off the mouse. While NVDA’s valuations are admittedly sky-high, the company is backed by exceptionally strong fundamentals that make it a buy, even from here.
Nvidia’s Strong First Quarter
Nvidia reported Q1 revenue of $1.94 billion and posted GAAP earnings of 79 cents per share, and 85 cents after backing out certain items. That was good enough for top- and bottom-line beats, against expectations of $1.91 billion and 67 cents per share.
More impressively, revenues were up 48% year-over-year, and earnings more than doubled.
NVDA continues to grab market share and grow sales by addressing the strong demand from the massive total addressable market of graphics hardware and software solutions — a market that extends well beyond the PC market. Nvidia’s business includes automotive, professional visualization, gaming and datacenter, and on that last front, Nvidia’s CEO said datacenter GPUs nearly tripled from last year.
Growth in the AI Revolution
Nvidia also is benefiting from the AI revolution. The company is leveraging its technology development in GRID graphics virtualization and high-performance computing. During the quarter, revenue grew thanks to demand for its DSX-1 AI supercomputer.
Fujitsu installed 24 systems in the supercomputer. Customers including Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOGL) and Alibaba Group Holdings Ltd (NYSE:BABA) are all using Nvidia’s Tesla-based GPU accelerators that power AI. That group also includes Microsoft Corporation (NASDAQ:MSFT), which uses the Tesla P100 and P40 GPUs to power the Azure cloud.
Developments in Automotive
In just one year since Nvidia introduced the Drive PX 2 AI car platform, more than 225 companies in the car and truck industry are developing on it. Nvidia added to the successful development by adding on Bosch to develop an AI self-driving car computer.
Nvidia anticipates it will deliver Level 3 autonomy for cars by the end of this year. It will get to Level 4 autonomy by the end of 2018.
Nvidia is hardly worried that Advanced Micro Devices, Inc. (NASDAQ:AMD) refreshed its GPU lineup with Polaris and will launch Vega next month. he Nvidia GeForce costs one-third of that of a game console made by Microsoft or Sony Corp (ADR) (NYSE:SNE). The GPU card will appeal to gamers who scoff at the higher console prices.
Conversely, the higher-end GPUs will attract game players who demand quality; these cards support gameplay at 4K resolutions.
At CES 2017, NVDA announced GeForce NOW. By virtualizing the GeForce on the cloud, software companies could stream graphics-intensive programs as a service.
CEO Jen-Hsun Huang admits the company is still years away from offering the right balance between costs and service quality; it still needs game virtualization to become mainstream.
Bottom Line on NVDA Stock
On paper, Nvidia looks expensive at nearly 50 times earnings and more than 11 times price to sales. That’s really the only major strike against the company.
Nvidia is plenty profitable, and its technologies are dominant. As long as the company continues to report strong growth, NVDA stock holders will continue to reap the rewards.
Chris Lau is a DIY Value Investing marketplace author.