[Editor’s Note:Dividend information in this article was corrected on July 5, 2019.]
The stock chart of Nvidia (NASDAQ:NVDA) over the last year has been nothing if not scary.
As recently as last September,Nvidia stock price was over $280. After the tech wreck, a long, grinding slog brought NVDA back to $190. After another fall in May (thanks to President Trump), Nvidia stock price has declined to $162.
With a market cap of $99 billion, Nvidia is back to trading at 30 times its earnings and about nine times its revenue, and analysts are starting to once more pound the table for it.
So, is it time to buy NVDA?
Why NVDA’s Outlook Is Positive
Any long-term analysis of technology trends indicates that Nvidia’s best days are ahead of it.
Gaming keeps growing, and Nvidia remains the leader of the gaming-chip sector. NVDA is still at the heart of autonomous driving and advanced robotics. Nvidia was able to build an artificial-intelligence supercomputer in just three weeks, mainly using its own resources.
Nvidia does face new competition in AI, but those competitors are operating in niches. Its growing software ecosystem gives it a complete machine-learning offering that competitors can’t match. Its future in the cloud seems secure.
That lead should expand as NVDA begins supporting Softbank’s (OTCMKTS:SFTBY) ARM architecture, which competes directly with Intel (NASDAQ:INTC), in high-performance computing. Right now 22 of 39 analysts following Nvidia stock say that investors should buy it.
As a result of these trends, many people have started calling NVDA a “no-brainer” investment again. The technical indicators of Nvidia stock going into earnings, due to be reported on Aug. 15, are positive. NVDA has beaten analysts’ average earnings estimates for the last two quarters.
If the chip slump really is ending, Nvidia looks very well-positioned. Analysts are bullish on NVDA because they expect the growth of the chip sector to resume.
The Bear Case on Nvidia Stock
There are still those who are bearish on NVDA because they fear that the chip slump could return or that Nvidia’s competitors could reduce its dominance.
That is good. It creates a “wall of worry” that acts as friction to a rising stock price. It’s better, in a way, than having analysts compete to see who can praise the stock more.
Some analysts believe that a cyclical recovery is already priced into Nvidia stock. Others worry that its continuing dependence on China, from which it derives 44% of its revenues, leave it one tweet away from disaster.
Finally, guidance from Nvidia’s management has been cautious.
The bears’ beliefs appear to be based on short-term thinking. For young investors with money to put to work, whether the slump ends this quarter or next isn’t nearly as important as how long a recovery might last and where its peak might be. Trading may be based on tweets, but investing should be based on fundamentals.
The Bottom Line on Nvidia Stock
As I have written before, not every stock is right for every investor.
NVDA is the kind of stock you should buy if you look good in a leather jacket. Its dividend yield is around 0.4%. The revolution it’s enabling lies ahead. The chip industry remains subject to booms and busts. If you might need your money tomorrow, or you need income from your investments, NVDA is not the stock for you.
Younger investors seeking long-term capital gains, however, should buy NVDA stock now.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.