I like Nvidia Corporation (NASDAQ:NVDA). I really do. Nvidia is a great company, with one of the best stories in the market. I even like NVDA stock – albeit at the right price.
But with Nvidia’s market capitalization above $100 billion, I’m just not sure NVDA stock is at the right price anymore.
And one of my long-running concerns about the company, and the stock, has been the increasing amount of competition in its key end markets. That competition is intensifying as we speak, with several recent events showing rivals’ response to Nvidia’s recent strength.
To be sure, I don’t necessarily think Nvidia is going to lose in markets like gaming and automotive. And, as I’ve written in the past, NVDA stock has made a lot of skeptics, let alone bears, look foolish over the years. Still, Nvidia is pricing in a substantial amount of profit growth. And if its rivals can take share, or pressure pricing, that growth may not be quite what NVDA bulls hope. That’s a risk that investors need to keep in mind.
Nvidia, AMD and Tesla
NVDA stock was knocked off an all-time high by a report from CNBC that Tesla Inc (NASDAQ:TSLA) was working with Advanced Micro Devices, Inc. (NASDAQ:AMD) to develop an artificial intelligence chip for its self-driving cars. AMD shares jumped on the news, while NVDA stock fell.
That report appears to have been mostly incorrect, as our James Brumley explained. AMD shares indeed would give back their gains soon after.
Oddly, however, NVDA shares did not. It may be that the report, even if it wasn’t 100% accurate, highlighted some of the concerns about Nvidia’s role with Tesla, in particular. Or it may be that investors are starting to see Nvidia’s competitive position as less of a fortress than it has been in the past.
Competitors Are Coming
Because Tesla aside, Nvidia’s competitors are coming for it. AMD’s new Vega chips are targeting the gaming space, which remains Nvidia’s largest market. Wells Fargo & Co (NYSE:WFC) analyst argued this month that the Vega products “offer comparable performance and price to Nvidia’s offerings.” AMD also appears to have a pricing-driven advantage in cryptocurrency mining, demand for which has been a recent driver of both AMD and NVDA stock.
Meanwhile, the traditional leader in the semiconductor industry, Intel Corporation (NASDAQ:INTC), is trying to reassert its former dominance. In automotive, the company recently confirmed long-standing speculation that it was the chip supplier to Alphabet Inc (NASDAQ:GOOGL) unit Waymo, revealing that the two companies had partnered since 2009. And while the specifics of the supposed Tesla-AMD partnership remain unclear in AI, Bloomberg reported that Tesla did shift to Intel chips for so-called ‘infotainment’ capabilities in its vehicles.
Meanwhile, Intel’s new Core processors are a clear shot at Nvidia’s gaming dominance, with their release leading NVDA stock to fall almost 4%. And the giant is trying to defend its own dominance in data center from encroachment by both Nvidia and AMD.
Across the board, then, Nvidia will have tough competition, mostly from a resurgent AMD and a rebounding Intel. It will have to manage that competition well to drive further upside in NVDA stock.
Is NVDA Stock A Buy?
All that said, Nvidia still remains in a premier position. Its lead in artificial intelligence is “nearly impossible to replicate,” according to one analyst. It is the market share leader in GPUs at a time when both cryptocurrency and high-end gaming trends are spiking demand. It has a broad range of partnerships already in automotive.
And, again, investors and analysts have missed out on a lot of upside in NVDA stock over the years by being overly cautious.
Still, this remains a stock trading at over 40x fiscal 2019 (ending January) EPS estimates, even backing out the cash on the balance sheet. Years of growth, and margin expansion, are priced in. And to drive real upside in NVDA stock, Nvidia has to not only win in all of its key markets, but also win pretty big.
I’m not going to be the one to bet against Nvidia on that front. But investors betting on Nvidia at the least need to be aware that Intel, AMD and other rivals will be doing all they can to disrupt the growth story here. And they don’t need to be 100% successful to have a negative impact on NVDA stock.
As of this writing, Vince Martin has no positions in any securities mentioned.