Another day, another new high close. For Nvidia (NASDAQ:NVDA) that’s been a pattern through much of the past five years.
There were two interruptions — when the crypto mining market collapsed in 2018, and again during this year’s March market meltdown — but in both cases Nvidia quickly bounced back. With NVDA stock nearing the $420 level, is there still upside to this graphics chip company?
Nvidia’s Q1 Earnings
Nvidia reported its earnings for the first quarter fiscal 2021 on May 21. Nvidia stock popped nearly 3% the next day, and with good reason.
Revenue of $3.08 billion was up 39% year-over-year. Gaming revenue was up 27% YOY. Data Center revenue was up 80% compared to last year, hitting a record $1.14 billion. Adjusted EPS of $1.90 blew past the $1.69 Wall Street had been expecting. In addition, Nvidia completed its acquisition of Mellanox Technologies during the quarter. This move is seen as significantly strengthening Nvidia’s position in data center, AI and cloud computing markets.
Is Nvidia Pandemic-proof?
With Nvidia’s first quarter ending April 26, it covered much of the worst of the novel coronavirus impact. Lockdowns in the U.S. had begun more than a month before. Disruptions in the Chinese supply chain had hit many tech companies. While the pandemic hurt many companies, it actually worked in Nvidia’s favor. The company benefited from a big boost in the popularity of gaming, and as laptops were snapped up to support remote working and education.
Whether this boost will continue is difficult to predict. Nvidia alluded to this in its Q1 earning report, noting “current market uncertainties” when discussing when it plans to resume share repurchases.
How Are Competing Stocks Performing?
Nvidia stock has posted growth of nearly 75% so far in 2020. That would be very impressive at the best of times. In a year where the novel coronavirus pandemic and an oil price war shocked the markets, it’s nothing short of spectacular. Especially for a company that’s not a biotech firm on the hunt for a COVID-19 vaccine.
It would help to get some context around Nvidia’s performance. How are the company’s competitors faring this year?
Advanced Micro Devices (NASDAQ:AMD) battles Nvidia on the GPU market, competing in the PC market, game console market, and in data center solutions. AMD has been resurgent over the past five years, and its stock continues to fly high in 2020. It’s up 57% so far this year.
Intel (NASDAQ:INTC) and Nvidia clash primarily in the data center AI market. Intel was showing off its own computer GPU at this year’s Consumer Electronics Show, a move that will put it in direct competition with Nvidia’s graphics cards. INTC stock has been battered by chip delays, and is down 33% so far in 2020.
Nvidia stock is the winner.
Bottom Line on NVDA Stock
There’s no arguing the fact that Nvidia stock has been on a roll in 2020. The surge in popularity of PC gaming during the pandemic hasn’t hurt, and the acquisition of Mellanox significantly boosts its prospects in the cloud and AI market. The company wasn’t hurt by the pandemic in the first quarter — on the contrary it posted numbers across the board that were up impressively over last year.
The big question is whether lasting effects from the pandemic, (a recession), will result in consumers and corporate customers tightening their spending. This is a big part of the “market uncertainties” Nvidia alluded to in its Q1 earnings report. That uncertainty is why the analysts surveyed by The Wall Street Journal have Nvidia stock rated as overweight, but their 12-month price target of $406.82 has nearly 3% downside.
Nvidia is a solid investment, especially among chip companies. However, whether Nvidia can continue to post the gains seen so far this year is iffy. We’ll find out how the company has performed as the pandemic’s impact stretched out in the U.S. in mid-August, when Nvidia is expected to report its Q2 earnings.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
