Since the mid-year, Nvidia Corporation (NASDAQ:NVDA) enjoyed an uptrend that sent the stock from a $135 low to $212.17. Valuations now look unfavorable with the forward P/E at 29 times. The graphics chip giant will grow EPS by 30% this year and next but is this enough to suggest more upside ahead for Nvidia stock?
Last month, Nvidia posted revenue falling to $3.01 billion, down from $3.18 billion last year. EPS fell from $1.97 last year to $1.45 on a GAAP basis. Improving graphics card demand, through the RTX refresh, supported the strong third-quarter results.
This quarter, the CEO said “we have laid the foundation for where AI will ultimately make the greatest impact. We extended our reach beyond the cloud, to the edge, where GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries.”
Nvidia also reported record shipments of v100 and t4 shipments in the quarter. T4 GPU continued to gain adoption in public clouds. Management highlighted its availability on Amazon’s (NASDAQ:AMZN) AWS.
And although v100 training GPU shipments were strong, Nvidia shipped more T4s than v100 for the very first time. With its strong inference business, expect deep learning developments driving sales in this segment in the next few quarters.
Growth Opportunities Ahead
Nvidia stock may continue moving higher as the company turns its attention on accelerated computing. It has ProVis, gaming, automotive, and data center markets to expand its market platform.
Although Q3 sales dipped, the current quarter will benefit from seasonality. Holiday sales should improve, supported by marketing activities and bundles or deals that encourage gamers to buy an RTX GPU.
Nvidia is seeing RTX, or ray tracing technology, adoption broadening. Max-Q is increasing Nvidia’s product line-up, giving customers more choice. It introduced RTX last year. The platform is ushering a new era in next-generation gaming.
Today, the gaming world has more than a few dozen games that support RTX. Minecraft, for example, is a top-selling game that will ship with ray tracing support.
Laptops with Nvidia Support
Nvidia has over 130 laptops that support high-end gaming and are also thin and light. This form factor is an underlying characteristic for systems having Max-Q technology. The market needs portability and power to compete with the smartphone and tablet segments. But gaming laptops offer more usability. So long as demand stabilizes, Nvidia will continue to achieve growth in this mature market.
In the desktop market, Nvidia has graphic cards that are at a wide price range of between $100 and over $1,000. Ray tracing support on many of its cards will differentiate its product over Advanced Micro Devices (NASDAQ:AMD), which is struggling to keep up with Nvidia.
The notebook market accounts for almost one-third of its overall gaming business. Looking ahead, Nvidia expects seasonal strength will result in Q4 sales growing from Q3. The company expects the same trend of sequential sales increases in the desktop market.
Risks in Holding NVDA Stock
Intel (NASDAQ:INTC) faced CPU output constraints but Nvidia said that this will not have any impact on its business. The shortage will not hurt Nvidia’s high-end systems sales.
Last quarter, the company did not see any real impact from the chip shortage. And in Q4, its guidance reflects limited headwinds from the shortage. Still, the constraints are a potential risk factor for NVDA stock, albeit a low one.
Valuation and Your Nvidia Stock Takeaway
NVDA stock is up ~60% YTD, recovering from a steep drop from last year. If markets hold their gains for the year, Nvidia stock may offer more upside in the near-term. Continue holding this as a long-term investment as GPU product demand accelerates.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.
