The past few weeks have been great for semiconductor firm Nvidia (NASDAQ:NVDA). Not only has Nvidia stock been upgraded by several big-name analysts, but the overall industry has seen a lift as trade tension between the US and China looks to be on the verge of easing.
While NVDA stock is still 25% lower than where it was at this time last year, the firm appears to be clawing its way back above the $200 mark.
On paper, Nvidia looks to be back on firm footing, but I’d wait for those Q3 results before breaking out the bubbly.
NVDA Stock Playing a Long Game
There’s no denying the long-term case for NVDA stock. The firm’s well-diversified business means it can grow alongside several rapidly expanding industries. In the near term, Nvidia stock is dependent on success in the gaming space.
NVDA’s gaming arm made up nearly 50% of the firm’s overall revenue during the first half of the year, so the bottom line here is that Nvidia needs to perform well in the gaming industry in order to fund growth in other key areas.
The good thing about gaming being a driver for Nvidia stock is that it’s a growing industry— so NVDA is expanding the rest of its business alongside the gaming segment and not trying to replace it.
Q3 Is Key
Over the past few quarters, we’ve seen a decline in Nvidia’s gaming revenue as the firm battled inventory issues that stemmed from the collapse of cryptocurrencies in 2017. However, Piper Jaffray analyst Harsh Kumar says those issues are firmly behind Nvidia while reiterating an Overweight rating on the stock.
Kumar isn’t alone. A lot of people think NVDA stock is about to come out the other side of its inventory issues stronger in the coming quarter. Back in September, I pointed to Nvidia’s Q3 earnings as a pivotal point for the company. We saw a mixed bag in the second quarter, but Q3 has always been regarded as NVDA’s chance to solidify its comeback.
Not only is the firm going to be up against much easier comparisons, but the company is also benefitting from a host of tailwinds.
The firm is due to report its Q3 results on November 21, and a lot can happen between now and then. For one thing, pressure is high for NVDA’s upcoming earnings— the firm is expected to prove that it’s back on track, so any misstep could be disastrous for Nvidia stock.
Secondly, there’s the lead-up to Nvidia’s announcement that investors will have to think about. Because the semiconductor industry as a whole has been volatile, NVDA’s earnings aren’t the only ones that will impact its share price.
If history repeats itself, Nvidia will probably experience some volatility throughout the remainder of October as its peers report their own earnings— that’s especially true for Advanced Micro Devices’ (NASDAQ:AMD) results as the two are fierce competitors in the GPU space.
If you’ve got your eye much further on the horizon and you can stomach a little volatility, though, Nvidia isn’t a bad choice in the semiconductor space. NVDA is much more than just a gaming play. The firm’s data center business is also thriving, and its recent acquisition of Mellanox could be a huge boon for that arm of Nvidia’s business, as long as trade tensions don’t push Beijing to eventually block the deal.
Then there’s Nvidia’s presence in the automotive sector with its self-driving chips, which gives the firm a lengthy growth runway as that industry continues to develop.
Of course, it’s worth noting that autonomous driving is still a long way off in the future, but that doesn’t mean its uses in commercial settings where automated driving can be applied to equipment in a variety of industries like construction or mining.
Bottom Line on Nvidia Stock
The bottom line on Nvidia stock is that it’s a great long-term semiconductor play. The firm is working several end-markets, all of which are likely to continue gaining momentum well into the future. While competition is certainly a concern, NVDA looks likely to secure its position as a top chipmaker over the next few years.
However, traders should buckle up because Nvidia is likely to see a great deal of volatility this earnings season and beyond as trade war tension continues to simmer and worries about the industry as a whole weigh on NVDA stock.
As of this writing, Laura Hoy was long AMD.