NVIDIA (NASDAQ: NVDA) stock has had a decent rally so far this year. Nvidia stock is up by 20% in that time.
Although it is underperforming its peer, Advanced Micro Devices (NASDAQ: AMD), the valuation of NVDA stock is more attractive than that of INTC on several fronts. Value investors could hop onto Intel Corporation (NASDAQ: INTC) stock after it erased 21% of its value in the last month.
Yet NVIDIA’s growth prospects relative to its peers are more appealing. The graphics chip maker has much to offer investors.
At its investor presentation, NVDA identified a number of computing architectures that should drive the company’s growth going forward.
Gaming Technology Advancements
Nvidia touted its launch of a new platform, RTX, as the biggest leap in that area in 15 years. While RTX advances the detail of graphics in ways that were not possible before, gamers are not rushing to upgrade. That’s because RTX slows the FPS (frames per second) of games. Besides, not every game supports the technology.
In the laptop space, Nvidia launched MAX-Q laptops, which are thinner and more powerful than previous gaming laptops.
Revenue from Nvidia’s GeForce graphics processing units grew three-fold in the last four years. NVDA’s revenue from gaming laptops soared 59%. The strong performance suggests that NVDA stock, which has a price-earnings ratio of 24, has a fairly low valuation.
The Weakness of NVDA Stock Has Created a Buying Opportunity
The 7.7% drop of NVDA stock in the last week, due to the declines of the stock market and a 2019 guidance cut by Intel, creates a good entry point for investors. RTX is a positive driver for mid-range GPUs. Plus, when NVDA reports its earnings on May 16, it may note that more of its customers upgraded their graphics cards during the quarter. Since gamers are demanding higher frame-per-second performance, especially in esports games, chances are good that NVDA’s results will beat analysts’ consensus estimates, sparking a rally by NVDA stock.
Nvidia’s GeForce Now GPU is a billion-dollar opportunity that will boost NVDA stock. By delivering the gaming power of PCs via the cloud, it will attract casual gamers and those who prefer a cloud-based gaming environment that will allow them to avoid constantly paying for new GPUs. Already, 1 million users are on the waiting list for GeForce, and it has 300,000 monthly active users.
The Strong Growth of NVDA’s Datacenter Business
NVDA’s datacenter revenue jumped 52% between FY2018 and FY2019, to $2.93 billion. The HPC (high-performance computing) market is worth $37 billion, creating another big opportunity for NVDA and NVDA stock. Nvidia estimates that the total available market of HPC will reach $50 billion by 2023.
The Bottom Line on NVDA Stock
At its current levels, NVDA stock is trading close to its fair value. If investors base the value of Nvidia stock on its future cash flow levels, then NVDA stock may move higher.
If management raises its growth outlook for the rest of the year, investors could also raise their five-year revenue growth-rate expectations. In this scenario, in which NVDA’s revenue is growing at an annual rate of 15%, NVDA stock would be worth more than $200 per share.
As of this writing, the author did not hold a position in any of the aforementioned securities.