Here’s Why a Gamble on Nvidia Stock Might Pay Off

NVDA has broader strengths in the tech industry and squares off against AMD in the gaming sector

Semiconductor and technology giant Nvidia (NASDAQ:NVDA) has suffered misfortune due to timing issues over the past year or so. In October of last year, the Nvidia stock price disproportionately suffered from the broader market selloff. Then, after going on a convincing recovery rally in the first four months of this year, NVDA fell short.

Recessionary pressures make Nvidia stock a risky contrarian play
Source: Hairem / Shutterstock.com

Part of the reason why is that Advanced Micro Devices (NASDAQ:AMD) started to assert itself fundamentally. Long seen as the smaller sibling in the semiconductor space, AMD has churned out some impressive products. Moreover, they have either matched or exceeded the performance stats of the alpha dog chips.

On top of that, we have the escalation of the U.S.-China trade war. Of course, China represents a massive revenue stream for NVDA. For example, earlier this year, management guided down top-line sales expectations due to weak demand from the world’s second-biggest economy. With the recent flare-up, the Nvidia stock price has been awfully choppy.

That said, the embattled company released information that should give some hope to stakeholders of Nvidia stock.

NVDA Delivers Processing Firepower

Arguably, the Nvidia rivalry with AMD isn’t as comprehensive as the one AMD has with Intel (NASDAQ:INTC). Nevertheless, where the former pairing has butted heads is in the gaming arena.

As I alluded to earlier, Advanced Micro has made huge strides in their processor offerings. And within the lucrative video game market, AMD’s processors have specialized in image sharpening and input lag reduction. The latter involves the time when a player makes an action through the controller, and the response time within a game.

Obviously, the shorter the time between input and response, the better. Now, NVDA is claiming that they achieve superior specs with their processor’s anti-lag system.

In nominal terms, we’re talking milliseconds of time save, hardly what you would think is a substantive improvement. Also, it seems like a pretty wonky argument for Nvidia stock.

However, video games are big business. And given worldwide trends, industry phenomena like esports will become an even bigger business. Already, we’re seeing major sponsorship deals in gaming tournaments. Further, celebrities and pro-athletes have joined in on the fun, bringing in both eyeballs and dollars.

Thus, those milliseconds are huge for NVDA. Literally, a gaming tournament can be won or lost on such tiny margins. As ridiculous as it may seem to non-gamers, even a small edge can eventually translate to massive revenue.

Granted, we should take anything NVDA says about its own products with a huge grain of salt. However, this time, they might have a point.

As our own Will Healy noted about some of AMD’s latest processors, they may not work as well as advertised. In fact, several users have complained on message boards and forums that Advanced Micro’s Ryzen 3000 doesn’t clock in the manufacturer’s promised performance stats.

Granularity More Critical than Ever for Nvidia Stock

For many folks, this might sound like a lot of nerd-speak. Ordinarily, I’d agree with you. However, this processor-performance granularity has significant implications for the Nvidia stock price due to the present context.

With the trade war raging, all companies – especially tech firms – are seeking ways to survive a coming downturn. What benefits NVDA stock at this juncture is that video games should turn out to be a fairly recession-resistant industry.

Back during the Great Recession, the box office fared very well. Why? Simply put, Hollywood blockbusters offered escapism for a relatively low price. And back in the 1930s during the low days of the Great Depression, movies also brought smiles for cheap.

I will argue that the only thing that changed today is the platform. Thus, it’s important for Nvidia to assume leadership in this segment. After all, it might turn out to be one of the few areas that we’ll see legitimate growth.

Enough to Gamble on Nvidia?

But is gaming alone enough to take a speculative bite on NVDA stock? Probably not. Instead, what investors should focus on is the cumulative argument.

Essentially, Nvidia had to muscle its way into AMD’s gaming space because that’s where this rivalry is most robust. But in other areas, such as driverless-vehicle technologies or artificial intelligence, Nvidia imposes a more dominant presence.

Plus, let’s just address the low-hanging fruit. The enterprise value for Nvidia stock is $98.5 billion. For AMD, it’s under $35 billion. Thus, push comes to shove, Nvidia simply has more resources to buffer a downturn or recession.

Certainly, it’s not a comfortable investment given the trade war risks. However, if you’re going to bet on a semiconductor, NVDA is it.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/08/heres-why-a-gamble-on-nvidia-stock-might-pay-off/.

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