Nvidia (NASDAQ:NVDA) stock has been trading in a narrow range for the last 8-10 months. During this period the company has addressed fundamental challenges that were a concern for the markets. In particular, the gaming segment is growing again. However, this has not been enough for the markets to trigger a sustained upside.
I am of the opinion that the range-bound NVDA stock provides a golden buying opportunity, and Nvidia can be a long-term outperformer. This coverage will discuss the factors for this bullish view.
The trade war between the United States and China has remained in focus. Discussing NVDA is relevant here with the company deriving 24% revenue from China. Clearly, this is one reason for NVDA stock trading sideways.
However, with the two countries slated to resume trade talks in October, Nvidia stock might have a positive catalyst on the horizon. With both countries suffering economically due to the trade conflict, it is very likely that the trade talks will be productive.
Of course, I am not bullish on Nvidia just on the basis of possible resolution to the trade war. There are ample company specific factors that make me bullish on NVDA.
A Quick Note on Competition
I also want to mention here that the global GPU market shipment increased by 0.6% in Q2. Shipments for Advanced Micro Devices (NASDAQ:AMD) increased by 9.8% while shipments were flat for Nvidia. On the other hand, shipments for Intel (NASDAQ:INTC) declined by 1.4%.
While AMD edged ahead of Nvidia in terms of market share, the data includes all forms of graphic processors. It would therefore not be fair to compare Nvidia with AMD based on this data.
If we specifically look at the video card market share, Nvidia is a clear leader with 58.87% market share as compared to a market share of 23.11% for Advanced Micro Devices. Nvidia has a pricey product offering and the data clearly indicates the consumers prefer performance over price.
I also believe that Nvidia is making meaningful inroads in segments like artificial intelligence, machine learning, IoT, high performance computing, among others. AMD and Nvidia might not be comparable at all few years down the line.
New Growth Avenues for Nvidia
It goes without saying that gaming remains the cash flow generator for Nvidia. However, NVDA will be a different organization few years down the line.
Just as an example, Nvidia GPU and CUDA-X AI can be used for conversational AI. According to ComScore, 50% of all searches will be voice searches by 2020. Volkswagen has also used the company’s GPU technology to build new vehicle designs. Not only are we talking about a wider application of GPUs, but potentially big addressable markets.
Similarly, Nvidia has made rapid progress in the autonomous car segment. Recently, the company announced a partnership to bring AI powered Robotaxis in Europe. Healthcare is yet another industry where AI is likely to see significant application in the coming years. Siemens (OTCKTS:SIEGY) is already using Nvidia HGX servers to accelerate radiation oncology workflow.
These examples back my point that Nvidia is spreading wings. I believe that the company is tapping the right markets for expansion and diversification.
Final Thoughts on Nvidia Stock
I am of the view that renewed growth will continue for NVDA in the gaming segment. I see growth coming from NVIDIA GeForce RTX™ GPU. It is the only GPU that is capable of playing games with real-time ray tracing.
Minecraft, which is the world’s bestselling video game is already using real-time ray tracing. As these graphic cards gain traction, decent revenue growth is likely to sustain.
I must mention here that the company’s second quarter revenue from data center was weak on a year-on-year basis. However, enterprise AI will boost long-term revenue and Nvidia is working towards building a client base that is diversified across industries.
Overall, Nvidia has a cash cow in the form of the gaming segment. In addition, the company is making inroads in high growth segments. This makes the stock worth considering with a long-term horizon.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.