Is now the time to invest in Nvidia (NASDAQ:NVDA)? Nvidia stock has been on a bit of a run this month, up 12% since September 3. NVDA has gained an impressive 38% so far in 2019 — yet remains far from the $281 highs it hit last October.
The majority of analysts have it as a buy. However, despite their bullish attitude, at its current $184 level, there is little upside to buying now, when those same analysts have an average 12-month price target for NVDA of $189.27.
Should you buy Nvidia stock at this point? Does it have the potential to continue growing, or has NVDA pretty much run out of steam?
AI Is a Future Nvidia Stock Catalyst
There is much to be said about NVDA’s long term potential when it comes to AI. The company has been investing heavily in this area, looking to machine learning and autonomous vehicles as future growth areas. InvestorPlace’s Chris Lau has a good read on how AI and self-driving car tech could pay off for Nvidia stock in the long term.
But I want to focus on gaming because that is the area that is going to hold Nvidia back over the next year.
Nvidia Missed the Gaming Console Ramp-Up
Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) are releasing next-generation Xbox and Playstation game consoles in 2020. That is going to kick off a huge upgrade cycle, but it won’t benefit NVDA. Advanced Micro Devices (NASDAQ:AMD) will be powering both of those consoles.
The Nintendo Switch uses custom Nvidia silicon, but with the Switch still mid-cycle in its lifespan, an all-new version isn’t expected any time soon. Nvidia stock is not going to see the sort of upside from Switch sales that it did when Nintendo’s console first launched.
Nvidia is also left in the cold on the most prominent experiment in video game streaming. Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google is launching its Stadia cloud game streaming service in November. Stadia is a double-blow against Nvidia.
Subscribers will be able to play AAA PC video game titles on a wide range of devices without the need for a powerful gaming PC equipped with a graphics card. Instead, cloud data centers will do the heaving lifting, with custom AMD GPUs delivering 4K graphics at 60 fps (with 8k and 120 fps on the horizon).
If Google’s Stadia is a success, AMD will get orders for more of those custom GPUs. Nvidia will likely see the demand for graphics cards to power gaming PCs take a hit.
Putting Together the Pieces for Nvidia Stock
If you look at the two factors spiked out here, the somewhat puzzling analyst positions make sense. Why would do many analysts have NVDA rated as a Buy, yet have 12-month price target that has only around 3% upside?
The next year doesn’t have a lot of revenue growth potential for Nvidia. It’s largely missing out on the next-generation game console cycle, it’s missing out on the biggest cloud gaming initiative, and it could see its graphics card sales take a hit should cloud gaming take off.
At the same time, its investment in AI and autonomous driving technology is seen as likely to pay off in a big way, but that payday is further in the future.
Putting all the pieces together, it seems probable that NVDA stock is approaching a ceiling. Buying now, you are unlikely to see major gains over the next year. But if you intend to hold onto it — with AI ramping up and autonomous cars inching closer to mainstream — that NVDA investment will pay off in the long term.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.