It’s been a bumpy ride in financial markets over the past month and that volatility is expected to continue. For that reason, investors have been searching for quality investments that can last through the turbulence. In the semiconductor space, NVIDIA (NASDAQ:NVDA) is a great place to start looking. After losing roughly 20% of its value, Nvidia stock looks like a great bet.
Semiconductor stocks have been hit hard by coronavirus-related challenges because of disruptions to supply chains as well as a lag in demand. However, that sudden lapse is expected to pick back up again once the virus has subsided, making now a good time to start building a position.
Nvidia Stock Offers a Diverse Play
One of the many reasons Nvidia is a quality semiconductor stock is diversity — the firm has its hands in several industries that are poised for growth ahead. That means that if any one avenue is disrupted for a significant period of time, the company doesn’t have all of its eggs in one basket.
Nvidia is the leading player in both data center applications and gaming right now. As it stands, its graphic processor units (GPUs) make up around 85% of the firm’s sales. The company has been successful in growing its market share in both industries, but its gaming plays look likely to offer the biggest pay off in 2020.
Nintendo’s Switch and Switch Lite devices both use Nvida chips, which could help boost demand despite economic downturns around the world. With many people holed up at home, gaming devices like the Switch have sold out. That not only increases demand for the devices at a time when retail is suffering. It will likely create future demand as people who might otherwise choose another activity spend this time getting more interested in gaming.
The Future for Nvidia
Nvidia has a stronghold on the future for chipmakers. The firm has cemented its place in the deep learning and artificial intelligence space — both of which have a long growth runway ahead. But where Nvidia’s future starts to look most interesting is in autonomous driving.
The company’s deep learning Drive PX platform has been widely accepted for research and development among those working to create fully autonomous vehicles. Nvidia has already partnered with more than 370 firms who are using the platform to create self-driving cars. That kind of early-stage involvement suggests that the chipmaker will have a leg up on the competition as autonomous driving continues to gain traction.
Aside from Nvidia’s diversified business and strong position in high-growth industries, the firm makes for a solid play in a market weighed down by uncertainty. Nvdia has a strong cash position compared to peers like Advanced Micro Devices (NASDAQ:AMD). Its price-to-cash flow ratio of 51% compared to AMD’s 97% suggests Nvidia stock is the better value.
Admittedly, Nvidia has more long-term debt than you might like to see when worries about an economic downturn are on the table. The firm is lugging around $1.99 billion worth of long-term debt compared to AMD’s $486 million. To put that into perspective, you have to look at debt in relation to equity, in which case NVDA stock is the winner.
The Bottom Line
It’s impossible to call a bottom in today’s market and many analysts believe there’s more pain ahead. If you do decide to buy right now it’s worth doing so with caution and building small positions rather than jumping in all at once.
With that said, the market is experiencing a flight to quality stocks right now. Most investors are looking at players like McDonalds (NYSE:MCD) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) with relatively low debt and strong, steady cash flow.
Those aren’t bad choices right now, but there’s certainly space for a semiconductor stock in a well balanced portfolio, and Nvidia stock is the best in class. The coronavirus-related sell-off that Nvidia has seen is temporary pain and offers investors a great entry point.
It’s possible NVDA stock and the wider market could fall further in the weeks ahead before making a true recovery. But the bottom line is that at current levels, NVDA stock is a bargain.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
