The rise of Nvidia Corporation (NASDAQ:NVDA) chips and artificial intelligence (AI) applications for both clients and servers has given rise to a new Silicon Valley buzzword.
Welcome to Fog Computing
Fog computing combines the trend of cloud-supporting AI with clients like phones, cars and speakers delivering its benefits. Fog reduces latency and the load on data centers, brings more complexity to the edge of wireless networks, and (most important to this story) will dramatically increase demand for Nvidia chips.
NVDA stock is thus transitioning from being a graphics chip company to an AI chip company, giving it a much longer growth runway and, ultimately, a much higher valuation. Even if Intel Corporation (NASDAQ:INTC) and cloud companies like Alphabet Inc (NASDAQ:GOOGL) develop their own AI chips, demand for Nvidia should stay strong.
Buy the Dip on NVDA Stock
NVDA stock is next due to report earnings on November 9, with analysts expecting 94 cents per share on revenue of $2.36 billion, but whispering that earnings might reach $1.02 per share. That’s an optimistic view that has pushed the shares up 15% to $205 just in the last month.
The chart pattern tells our Luke Lango that the stock will fall after earnings disappoint, as it has right after other recent earnings reports. This selling by traders, if it happens, will be a buying opportunity for longer-term investors.
That’s because Nvidia understands that software will be the key to winning the coming “Fog Wars,” and it’s already spending big to train the next generation of AI experts through its Deep Learning Institute. Getting its hardware into Amazon.com, Inc. (NASDAQ:AMZN) AWS cloud is another big win, because it forces AI experts to design around Nvidia chips.
With the largest companies like Alphabet, Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) having long ago abandoned trade shows for their own corporate events in making announcements, Nvidia should have the Consumer Electronics Show stage to itself in January, so it can show off self-driving cars, drawing more headlines to boost the stock.
Understand the Fog
When I wrote about “Always-On” technologies starting almost 15 years ago, I saw that server capabilities would have to come directly into homes and offices to support motes and low-power chips in the environment, on lawns, in cameras, and on peoples’ clothes. Fog computing echoes this vision, with cars becoming mobile servers, speakers like Alexa becoming home servers, and compatible AI software tying it all together.
Thus, threats like that of Elon Musk, CEO of Tesla Inc (NASDAQ:TSLA), not to use Nvidia chips in future self-driving Tesla cars are meaningless. Tesla won’t be the entire car market, and there will be plenty of other server locations, requiring fast connections to supportive data centers and clouds, keeping demand high. That’s another dip you can buy.
The Bottom Line on NVDA Stock
Fog computing is a solution to the latency problem that has bedeviled video game players for a decade. NVDA stock’s niche in gaming thus turns out to have been the best possible training ground for the coming Fog decade.
It’s true that the NVDA stock price appears to be ahead of itself, with a price-to-earnings ratio of 59, a price-to-sales ratio of almost 15 and a debt-to-assets ratio of 25%, as it invests ahead of demand. But its growth rate of 40% is sustainable. If you are a young investor with a long-term time horizon — say 10-20 years — you ignore the fog of financial war and just buy what you know will work.
If I were in my 20s again, NVDA stock would be among the first stocks I’d buy. It’s like buying Amazon at $300.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN and MSFT.
