Nvidia (NASDAQ:NVDA) will announce its first-quarter earnings on May 21, and you can feel the excitement in the air. Year-to-date, NVDA stock has gained almost 52%, and all signs point to the bull run continuing.
BMO Capital Markets analyst Ambrish Srivastava believes NVDA stock is “entering beast mode,” upping the price target to $425 from $285.
This enthusiasm is not unfounded since the company’s operations have remained mostly unscathed from the novel coronavirus. Several business lines are seeing tremendous growth during these times. That’s why revenues are estimated to climb to $13.3 billion this year.
Nvidia is supplying cutting-edge technology for several artificial intelligence applications. Grand View Research believes the global artificial intelligence market size will reach $390.9 billion by 2025. With so much at stake, it’s understandable why Nvidia is working hard to make sure it has a piece of that pie. Although the company’s main claim to fame is its GPU processors, it is also making products and services for several emerging industries.
It’s safe to say that NVDA stock is one for the future.
Gaming Should Drive NVIDIA Stock Higher
One of the core strengths of Nvidia’s portfolio is its gaming business. It is by far the most significant segment for the company, and there are no signs of it slowing anytime soon. Stay-at-home orders in a large number of states mean gamers will likely be ordering more of the company’s products and services. Revenue from gaming laptops was already on the rise for the last several quarters, but it’s sure to shoot up further due to the current circumstances.
Nvidia’s Max-Q gaming laptops are a particular favorite for ardent gamers and have registered record sales. Advanced Micro Devices (NASDAQ:AMD), a rival of the company, has also seen increased revenue from its Ryzen-powered laptops. Hence, it’s important to note that the entire market is benefiting from this momentum.
Nvidia recently announced a series of updates to Max-Q that will lead to twice the efficiency and frame rates, which should boost sales further. NVIDIA is also at the forefront of developing AI applications for gaming consoles, a future source of growth in the sector.
Focus on AI Will Lead to Big Gains in Upcoming Quarters
One of the reasons why I am so bullish on NVDA stock is that the chipmaker has a forward-thinking strategy and innovative streak. It’s a given that AI will power the markets in the coming decades. Every facet of our lives will change forever due to this area of science.
Apart from gaming, which is the company’s strong suit, Nvidia is also developing infrastructure to support self-driving cars. At the same time, Edge AI powers real-time operations for fast-paced decision making.
Meanwhile, Tesla and DGX continue to sell well among AI data scientists. GeForce RTX R.O.N., the AI-powered holographic assistant, is also a fan favorite among gamers. All of this doesn’t begin to scratch the surface of the kind of revolutionary work the company is doing. And that’s why, in several areas, Nvidia is in a league of its own.
Data Centers Will Be a Key Service
High-speed computing is a key phrase that is often associated with NVIDIA. And you will hear this phrase more often, considering Nvidia’s investment in the space. The company is already way ahead of the pack due to its GPU platform, expected to take a sizeable chunk of business away from traditional CPU solutions because of better processing times and cost-effectiveness.
NVIDIA believes the High-Performance Computing (HPC) server market will be a $50 billion opportunity by 2023. Thinking ahead, the company acquired Mellanox and Cumulus Networks to solidify its position in the data center segment. The move will help NVIDIA provide better operational solutions for data centers. The company also hopes to leverage the markets and service offerings of the firms to look into how they can service the next line of data centers.
Head in the Cloud
Nvidia CEO Jensen Huang believes a key driver for profitability will be growth in the public cloud, mainly due to the large number of tech startups that are mushrooming. Owing to their scale, startups find developing AI software in the cloud convenient and cheaper.
Data science will also be a key field for the company to explore moving forward. NVIDIA is coming up with AI-focused solutions to help large-scale companies produce better predictive analytics. This will allow companies to make more informed decisions regarding customer experiences and enhance their products and services accordingly.
Can AMD Hurt NVDA Stock’s Prospects?
AMD will supply the chips for PS5 and Xbox Series X. Incidentally, the company also powered the previous generation of both these consoles. Nvidia has announced that it will battle back with its GeForce RTX 3000 graphics cards. The company believes its cards will be faster and more powerful in providing the ultimate 4K gaming experience.
However, there’s no doubt that in an ideal world, Nvidia would want to supply parts for these consoles as well. Unfortunately, AMD has a separate department for designing and implementing custom solutions. Nvidia does not have that at the moment, and that could be an Achilles heel, Especially if AMD tries to establish itself in areas that are Nvidia’s domain.
NVDA Stock Outlook
Nvidia’s business model is fireproof by several standards. The growth of AI will provide the company with positive momentum for several years to come. However, the stock is certainly not cheap by any stretch, trading at $352.22 a pop, as of this writing. In February and March, there was a blip in share price, and savvy investors picked up the stock at bargain rates.
Nevertheless, the chipmaker will play a massive part in shaping how we do business once the pandemic is over. Expect NVDA stock to record substantial gains as a result. The U.S. and China account for the bulk of revenues for the company, and there will undoubtedly be some disruption there. PC-related sales will take a hit because access to physical stores was hampered in the first quarter. But East Asian countries, particularly China, have fared better than others in tackling the virus. Hence, store closures will not have a sustained negative impact.
But I digress; these are minor concerns. I expect Nvidia to outperform management expectations and deliver great numbers later in the week. Datacenter and gaming revenues will likely lead the charge, with auto revenues the only casualty. Major markets have seen record plunges in car sales, and it wouldn’t be surprising if the chipmaker feels the brunt of the overall sluggishness.
In summary, all signs point to the company enjoying a bumper quarter. There isn’t much going wrong with Nvidia at the moment, and I, for one, would readily increase my stake in the stock by a substantial sum.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.