Nvidia (NASDAQ:NVDA) has struggled since tech stocks crashed last fall. Even after a modest recovery, NVDA trades about 50% below its 52-week high. But it remains the leading graphics chips company, and its position in numerous emerging industries should enable Nvidia stock price to rise over the long-term.
Unfortunately, external concerns have hampered the performance of Nvidia. As a result, without a meaningful catalyst, Nvidia stock will generate neither excitement nor significant gains.
NVDA Maintains Its lead in Graphics Processing Units (GPUs)
Nvidia’s situation has not changed significantly since my last article on Nvidia stock. The Nvidia stock price remains near $150 per share as the trade war and the chip glut weigh on the stock.
Despite this stagnation, NVDA’s outlook appears to be positive. It remains ahead of AMD (NASDAQ:AMD) due to its continued innovation. AMD may have released GPUs that will enable it to compete for the higher ranges of the gaming market. However, as another InvestorPlace columnist,. Bret Kenwell, pointed out, Nvidia’s release of its line of SUPER series GPUs will keep it ahead in this market, assuming that the reports about the upcoming GPUs prove to be true. And since NVDA still obtains more revenue from gaming than from any other vertical market, the new GPUs could meaningfully impact Nvidia stock.
Moreover, bitcoin continues to recover, and it has moved above $9,000. For this reason, some have speculated that Nvidia can regain some of the crypto-mining revenue it lost last year after bitcoin crashed.
NVDA Has Become Boring
All of this amounts to good news for NVDA. Still, none of it provides a catalyst that will move Nvidia stock price higher in the near-term. Moreover, instead of acting like a “hot stock,” NVDA has become as dull as a stereotypical Dow Jones Industrial Average equity.
Nvidia’s work in the cloud, data centers, artificial intelligence (AI), virtual reality (VR) and self-driving cars took Nvidia stock price to almost $300 per share last year. However, in the first quarter of this year, gaming and auto were the company’s only businesses whose revenue climbed versus the previous quarter. .So it’s not surprising that NVDA’s Q1 revenue tumbled 31% year-over-year.
And since Nvidia stock trades at a price-earnings ratio of about 27.4, its Q1 performance won’t motivate investors to buy NVDA. That valuation is somewhat below the five-year average for the stock. However, most would not consider that multiple cheap, given NVDA’s declining revenue and profit.
What Approach Should Investors Take With Nvidia Stock?
So while NVDA remains a solid performer amid a chip glut, there are few reasons for investors to buy or sell Nvidia stock. So what could motivate more investors to buy NVDA?
A resolution of the trade war with China would do the trick. China has long served as a significant revenue source for NVDA. In fiscal 2019, China made up $2.8 billion of the company’s $11.72 billion in total revenues. Only Taiwan was a bigger geographic market for NVDA. Nvidia stock has little room to move higher as long as U.S.-China relations remain in jeopardy.
Also, widening adoption of cloud computing, VR, or self-driving cars would likely push NVDA higher, as the company could sell many more chips if any of those technologies proliferate. Until such events occur, investors have few reasons to take any action on Nvidia stock.
The Bottom Line on Nvidia
Nvidia will remain a boring stock until the trade war ends or technologies such as AI or self-driving cars become much more popular. Nvidia continues to maintain its lead in graphics chips, and its innovations appear poised to make it a leader in key industries of the future. Also, with bitcoin higher, NVDA may even regain some of its lost crypto-mining business.
However, its revenue growth may not accelerate as long as the trade war with China continues. Moreover, many emerging industries powered by Nvidia’s chips, such as AI, VR, self-driving cars, have not yet realized their potential. Until at least one of these factors changes, NVDA stock will remain dead money.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.