Among semiconductor firms, Nvidia (NASDAQ:NVDA) is easily one of the toughest names to call. After suffering devastating losses in 2018, NVDA stock gained significant traction this year. At one point, shares gained over 47% against the January opener. But a deteriorating relationship between the U.S. and China quickly eroded sentiment.
Currently, the Nvidia stock price is hanging around just above $154. At this level, shares are looking at a year-to-date profit of 18%. It’s an okay performance but after tanking like it did last year, NVDA cannot settle for this mediocrity. However, with a rough market impacting the semiconductors, investors are naturally concerned about the next phase for the chipmaker.
In addition, Nvidia stock faces serious competitive threats. While competitors like Intel (NASDAQ:INTC) have so far produced ho-hum returns, that’s not the case for Advanced Micro Devices (NASDAQ:AMD). Sharply contrasting with Nvidia’s volatile ride, AMD has more or less enjoyed an upwardly linear trajectory this year. At time of writing, AMD gained 67% YTD.
It’s not just trading sentiment that has driven the smaller rival skyward. At the world’s largest computer conference Computex 2019, AMD introduced an array of products. This time around, though, the company wanted to prove a point. No longer satisfied with producing lower to mid-tier “value” chips, AMD went toe-to-toe with Intel over the premium-products sector.
If you just look at the statistics, it appears AMD is winning.
Moreover, AMD has something for NVDA as well. The former’s gaming chips are aggressively infringing on Nvidia’s territory. For instance, AMD secured a deal with Microsoft (NASDAQ:MSFT) to supply chips for the next-generation Xbox console.
Is there any hope for the Nvidia stock price to stage a comeback?
A Broader Scope Helps Insulate NVDA Stock
I think it’s fair to say that semiconductors (and tech stocks generally) are emotional investments. Sure, fundamentals ultimately drive the markets. But sometimes, pockets of irrationality lever unusual influence on chipmakers.
Right now, the Nvidia stock price is caught on the wrong end of this spectrum. We have a hungry rival in AMD — which unquestionably attracts strong emotions — seeking credibility at the alpha dogs’ expense. Admittedly, they’re doing a fine job of disrupting the CPU and GPU markets with their recent outsized chips.
However, modern semiconductors can’t just rely on producing products for PCs and gaming consoles. Based on the rapid changes in this digitalization economy, they have to think bigger. And few companies think as big as NVDA.
That’s the reason why Daimler’s Mercedes-Benz teamed up with Nvidia to develop autonomous cars. In fact, the partnership extends much deeper. The German luxury automaker envisions a single system that carries both self-driving capabilities and smart functions within the cabin.
Better yet, this deal isn’t just a one-off benefit for Nvidia stock. Instead, the company is making a further push toward 21st century transportation. For instance, management recently inked a deal with Volvo. With this partnership, the two organizations are hoping to make autonomous trucking a reality.
Specifically, Volvo will utilize Nvidia’s artificial-intelligence platforms “for training, simulation, and in-vehicle computing.” The goal here is to make driverless commercial trucks a practical and safe component of our transportation networks.
This is two high-profile automotive deals within a half-year period. It begs the obvious question, why?
Simply, over the last several years, NVDA stock has been much more than just an investment toward a fast GPU. Don’t get me wrong; it’s certainly that. But focusing only on this aspect misses the longer-term potential.
Nvidia Stock May Lose Some Battles to Win the War
Because NVDA is a much more complex animal than when it first started, the company can’t win all its battles. That’s why I don’t think investors should be overly concerned about specific issues, such as Nvidia conceding ground to AMD over gaming-console chips.
For one thing, Microsoft’s announcement wasn’t a surprise. Both Microsoft and Sony (NYSE:SNE) have had extensive relationships with AMD to supply their gaming chips. It’s a lost opportunity for Nvidia, but nothing that would have me hitting the panic button.
More importantly, I’d rather win the decisive battles. For instance, if autonomous vehicles become mainstream, Nvidia would have near-insurmountable dominance in this segment. Moreover, the autonomous industry — unlike gaming — has limited risk from Chinese competitors.
I say this because underlining the trade war is both nations’ desperation to gain a technological edge over the other. Winning in autonomous vehicles would lead to profound synergies, further expanding Nvidia’s scope.
On the other hand, winning in gaming? That’s a commoditized battleground that anybody with enough money can achieve. NVDA, though, is playing the long game which necessarily involves sacrificing nearer-term pleasantries. Still, in this semiconductor discount, I’d rather have my money go where relevancy is more likely.
As of this writing, Josh Enomoto is long SNE.