Shares of Nvidia (NASDAQ:NVDA), which have surged nearly 60% in 2019, may still have some life left in them.
The company’s third-quarter earnings report was solid, beating analysts’ average estimates on both the top and bottom lines. Its guidance was soft, but that may have been the result of its pending acquisition of Mellanox(NASDAQ: MLNX), which is closing next year. Analysts may have been expecting the deal to close in 2019. If that was the case, their fourth-quarter revenue and earnings per share estimates for NVDA may have incorrectly included contributions from Mellanox.
And as InvestorPlace contributor Luke Lango recently noted, macroeconomic trends are going NVDA’s way. The U.S.-China trade war appears to be on the verge of being resolved. If the conflict ends soon, business confidence and capital spending should rise. Meanwhile, the recent sequential rebound of global semiconductor sales is another encouraging sign for Nvidia stock.
There are plenty of other reasons why NVDA stock, which trades at a 13% discount to analysts’ average 52-week price target of $240, is worth buying.
Nvidia’s Gaming and Data Center Businesses Are Poised to Grow
The revenue of the company’s Gaming unit, which has been hurt by the decline of the cryptocurrency market, rose an impressive 26% to $1.66 billion in Q3 compared with Q2. Its Q3 top line declined 8% versus the same period a year earlier. But according to NVDA, its results were better than expected due to the strength of its desktop and notebook gaming businesses.
NVDA also has high hopes for its recently launched GeForce GTX 1660 Super chip and its 1650 Super chip. The performance of the 1660 Super chip is 50% better than its predecessor, the Pascal-based 1060. The 1060 was the best-selling graphics processing unit in history. AMD (NASDAQ:AMD), however, remains a formidable competitor in this area, as it was chosen over NVDA to provide chips for Sony’s (NYSE:SNE) much-anticipated PlayStation 5 video-game console which is slated to be released next year.
NVDA’s data-center business also is poised to grow over the long-run. The unit’s revenue rose 11% in Q3 versus Q2 to $762 million. However, its sales fell 8% year-over-year.
Artificial Intelligence Will Be a Positive Catalyst for Nvidia Stock
According to research firm Gartner, spending on data centers, which fell 2.9% in 2019, will rise 2.5% in 2020. One reason for the rebound is the growth of artificial intelligence (AI).
The proliferation of AI is driving demand for Nvidia’s GPUs because of the computing power that’s needed for AI. As NVDA CEO Jensen Huang explained during the company’s recent earnings conference call, newer, natural language AI needs even more computing power than older types of of AI.
Another potential growth area for NVDA is autonomous vehicles. Earlier this year, Toyota (NYSE: TMC) announced that it would deepen its existing relationship with Nvidia.
Experts say NVDA’s self-driving technology will be a formidable competitor for Alphabet’s (NASDAQ: GOOG) self-driving business, Waymo.
Nvidia’s Auto unit has nowhere to go but up. In Q3, its sales dropped 6% YoY and 22% versus the previous quarter to $162 million.
As of this writing, Jonathan Berr doesn’t own shares of any of the stocks mentioned above.
