Already an established name in the gaming GPU space, Nvidia (NASDAQ:NVDA) has earned its market share despite fierce competition from rival Intel (NASDAQ:INTC). That being said, it’s a challenge for a value investor such as myself to justify accumulating Nvidia stock shares at its currently lofty price point.
When a company’s showing strength, though, a high price tag need not deter the value-minded investor. After all, if you’ll allow me to butcher a Warren Buffett quote, “Price is what you pay; value is what you get,” and I’m confident you’ll get good value with an allocation in NVDA stock.
Oftentimes I see traders worry about the spillover effect: one company’s troubles impacting asset prices across an entire sector. This is a legitimate concern, but we have to make informed decisions on a case-by-case basis. In the case of concerns surrounding Intel’s PC CPU shortages, this strikes me as more of a company-specific issue than a sector-wide problem.
A Closer Look at Nvidia Stock
Supply-side economists typically consider shortages a good thing, but that hasn’t been the case when it comes to Intel’s PC CPU supply issues. HP (NYSE:HPQ) and Dell (NYSE:DELL) have both expressed concerns regarding the shortages, with Dell complaining that Intel’s issues in this area “have worsened quarter-on-quarter” to the point of negatively impacting Dell’s projected January-quarter PC shipments.
So yes, it’s a problem, but not necessarily Nvidia’s problem. For one thing, HP and Dell have hinted that PC demand may subside in January after Microsoft (NASDAQ:MSFT) ends support for Windows 7; this ought to ease the PC CPU supply issue.
In any case, Nvidia hasn’t thus far been strongly impacted by Intel’s supply problems. Nvidia CFO Colette Kress has suggested that there was no serious impact during the company’s October quarter; besides, the supply shortages are a known quantity and have already been a factor in Nvidia’s quarterly guidance for January.
Looking Beyond the PC Market
Having taken an early stake in the cloud, AI, and other technologies, Nvidia set itself apart from PC-dependent competitors. The company’s forays into these growth-oriented subsectors have allowed Nvidia to succeed even when overall gaming revenues have disappointed.
Nvidia’s third-quarter earnings results tend to corroborate this. Gaming revenues retreated 6% from the same quarter of the previous year to $1.66 billion, while revenues from Nvidia’s overall GPU business declined 8% on a year-over-year basis to $2.56 billion.
Since the company has multiple irons in the fire, however, Nvidia nonetheless exceeded quarterly projections. As Moor Insights & Strategy’s Patrick Moorhead reported at the time, “Nvidia had a better-than-expected third quarter, beating revenue and earnings-per-share expectations.”
The company’s CEO, Jensen Huang, specifically cited artificial intelligence, 5G, the Internet of things, and of course the cloud as drivers of Nvidia’s current and future growth:
“This quarter, 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. We see strong data center growth ahead, driven by the rise of conversational AI and inference.”
That’s a heck of a sales pitch, but Huang’s argument remains compelling as 2020 will undoubtedly see increased dependence on these cutting-edge technologies.
I won’t go so far as to say that PC GPU sales won’t matter, but I won’t be surprised if Nvidia steals significant market share from Intel as technological diversification becomes an existential mandate – and Nvidia’s first-mover status spell trouble for second- and third-movers.
The Takeaway on Nvidia Stock
Personally, I’d like to see more tech firms branch out like Nvidia’s done in 2019. You might not like NVDA stock’s current price, but that doesn’t mean it won’t go higher – and with a head start in multiple leading-edge technologies, Nvidia will remain a threat to competitors and a rainmaker to shareholders.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
