Nvidia (NASDAQ:NVDA) stock has rallied sharply since mid-August, surging about 45% in less than four months. The company’s strong growth has been a key factor behind the rally. Consequently, I believe that Nvidia stock is attractive, even though its forward price-earnings ratio is 29. NVDA stock is trending higher, even if it will be negatively affected by some profit-taking in the near-term.
I believe that NVDA will become a more diversified company in the next few years. By diversified, I mean that the company’s products and solutions will be used by a wide range of industries. Automobile, retail, healthcare, education, entertainment and telecommunications are some of the industries in which NVDA will make inroads.
Speaking of telecommunications , it is worth noting that NVDA is set to benefit from the 5G revolution. In October, Nvidia unveiled the EGX Edge Supercomputing Platform. It is “designed to crunch the colossal amounts of data flowing through 5G networks.”
To make its supercomputing platform more comprehensive, Nvidia has partnered with IBM’s (NYSE:IBM) Red Hat and Microsoft (NASDAQ:MSFT). Some companies that have already adopted the EGX Edge Supercomputing Platform include Walmart (NYSE:WMT), Procter & Gamble (NYSE:PG) and BMW (OTCMKTS:BMWYY).
In the area of 5G, the company’s NVIDIA Aerial chip allows “telcos to build completely virtualized 5G radio access networks.” The chip will enable telecom companies to offer services such as augmented reality, virtual reality and cloud gaming. Therefore, in coming years, NVDA will benefit from the growth of 5G.
The Huge Potential of Autonomous Machines
The autonomous machine segment has a great deal of potential, and NVDA is well-positioned to capitalize on the opportunity.
The autonomous farm equipment market, which is expected to be worth $86.4 billion by 2025, is a good example. Yamaha Motor has agreed to buy Nvidia’s upcoming autonomous machines, including unmanned agriculture vehicles.
Similarly, the global autonomous vehicle market is expected to have a compound annual growth rate of nearly 40% from 2019-2026. The market is expected to be worth $556.67 billion by 2026. In this segment, Nvidia already has huge partners, including Toyota (NYSE:TM) and Mercedes-Benz.
In the AI logistics segment, Nvidia has made inroads by making a partnership deal with JD.com (NASDAQ:JD). An interesting point is that autonomous machines can be used in almost all major industries. Komatsu (OTC:KMTUY), one of the largest manufacturers of construction and mining equipment, is using Nvidia’s autonomous solution for heavy machinery.
It is clear that NVDA already has a strong presence in the autonomous machines market. In coming years, this business will have a significant, positive impact on the company’s top-line growth.
Meanwhile, there is speculation that NVDA is likely to launch 7 nanometer graphics cards in the first half of 2020. Because they are only 7 nanometers, the cards will probably perform better and consume less power than previous generations of products. In addition, a new graphic card, RTX 3080, is also in the pipeline. These launches should keep investors excited about Nvidia stock.
Final Thoughts on Nvidia Stock
I remain bullish on NVDA stock even after its sharp rally over the last few months. A moderate correction is likely, but the uptrend will remain intact.
Besides renewed strength in gaming and the potential for the growth of its data center business, NVDA is attractive because the company can make inroads in almost all major industries.
Another good example of this point is the company’s partnership with the U.S. Postal Service, which will use AI to improve its efficiency and delivery services.
Overall, Nvidia stock is worth considering, even at a forward PE of 29. The company’s innovation driven growth will trigger positive stock action.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
