Nvidia (NASDAQ:NVDA) shares are riding the roller coaster of Trump tweets, offering profits to both traders and investors.
Traders can profit by simply buying NVDA stock after Trump tweets about how much he hates China. Then sell after he types something nice and the stock goes up.
Investors can profit by buying Nvidia stock and ignoring the headlines.
The truth is that Nvidia does face a new challenge from China’s Huawai, which has been working on its own graphics chips for years. But it remains in a very strong position as enterprises turn data centers into clouds, and clouds turn toward artificial intelligence.
Competition is Growing
Competition is often seen as evidence that an industry leader is losing its way. It can also be a sign that a market is growing and, more importantly, evolving.
That’s the case here. The entry of Huawei into gaming graphics, and the rise of Advanced Micro Devices (NASDAQ:AMD), has many analysts nervous. The entry of Qualcomm (NASDAQ:QCOM) into cloud graphics and the continuing presence of Intel (NASDAQ:INTC) in the data center has many wondering if that niche is secure as well.
AMD is using its lead in microprocessor design to sell its Radeon chips to data centers. Intel is the low price leader, which matters a lot in the cloud market.
Qualcomm is also trying to turn its lead in phone technology into a place in the data center, with smaller, low-power cards. Cloud czars like Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) continue to work on their own chips.
The assumption is that new entrants mean less pie for everyone. Or it could mean there’s more pie.
Everybody Gets a Cloud
NVDA has been grabbing the big orders, and its pending $6.9 billion purchase of Mellanox Technologies (NASDAQ:MLNX) will widen the lead.
That’s because cloud technology isn’t just about the Cloud Czars anymore. Every scaled enterprise is working to turn their data centers into clouds and expand the footprint of cloud to the network edge. The combination of Nvidia and Mellanox let the company create a “cloud in a box” for this new market.
Nvidia also has the largest graphics software suite in the cloud space. That lead is growing, as it works with VMware (NYSE:VMW) to combine technologies, letting companies quickly create their own cloud networks for AI applications.
Over the next few years every data center will become a cloud, and every company with a scaled business footprint will be trying to extend the power of their cloud to the network edge. That’s the market Nvidia is working to serve now.
The Bears Come Out
Nvidia stock has been under pressure from reports that the data center business has “stalled.” This has caused some analysts, including our own Ian Bezek, to suggest selling the stock. But the stall is mainly in China, where cloud investment has plummeted this year, again because of the trade war. U.S. investment in cloud continues to rise.
NVDA’s recent earnings call also brought out the bears. They saw the quarter as barely meeting lower expectations. They focused on what they called a “sub-par” datacenter business, AMD’s challenge in gaming, and what looks like a long-term stall in autonomous driving.
NVDA Stock Bottom Line
While it will take time for Nvidia’s new cloud plans to pan out, artificial intelligence and ubiquitous clouds are key trends for the 2020s. Nvidia is wise to be planning for it.
You can time a purchase by waiting for hot trade rhetoric, but I personally think selling in the face of cooling rhetoric would be a mistake. This is especially true if you are an investor in your 40s or 50s looking for a payout 5-10 years down the road.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in NVDA.
