Chipmaker Nvidia (NASDAQ:NVDA) is having an extraordinary year, up more than 100% year-to-date. And with earnings coming up after the closing bell on Aug. 19, it’s a good bet that NVDA stock will keep its momentum.
While the novel coronavirus has done a number on many companies and sectors, Nvidia is one of those companies that’s actually flourishing during the Covid-19 pandemic.
The work-from-home culture and an increase in gaming — since nobody’s been able to travel, socialize or do anything outside the house for months — means more profits for NVDA stock.
Nvidia Earnings Preview
Analysts are expecting a solid report when Nvidia posts second-quarter earnings for its fiscal 2021 year. In fact, the chipmaker is projected to report adjusted net income of $1.2 billion on sales of $3.7 billion. Moreover, earnings per share are expected to come in at $1.98.
Looking a bit further ahead, analysts are also projecting third-quarter adjusted net income of $1.3 billion on sales of $4 billion, and full-year revenue of $14.7 billion.
With all of that in mind, InvestorPlace’s Vince Martin writes about what’s at stake for NVDA stock in this week’s earnings report:
“Overall, though, Nvidia also has a chance to cement its dominance of the sector. With Intel (NASDAQ:INTC) plunging after yet another launch delay, Nvidia is now the most-valuable U.S. semiconductor maker. So, if the company can deliver a blowout quarter — particularly in datacenter — there will be no debate as to which is the better business going forward. And recent history suggests that alone can drive NVDA stock even higher.”
4 Reasons to Be Bullish About NVDA Stock
It’s really hard to overstate the bullish sentiment around Nvidia stock. But for now, let’s focus on four key reasons why investors are so high on this company.
Next-generation chips: Nvidia is best known for its graphic processing units (GPUs) that make it one of the hottest names in the semiconductor space. GPUs are critical for make computer-generated graphics function in things like movies and video games.
On Aug. 10, the company released an eight-second video on Twitter (NYSE:TWTR) teasing the company’s next-generation gaming chips. The caption “#UltimateCountdown. 21 Days. 21 Years” indicates that the chips could be released on Aug. 31.
That, not coincidentally, is the 21st anniversary of the debut of Nvidia’s GeForce 256 chips. These were Nvidia’s first GPUs for the high-end gaming market.
That said, the gaming segment is a huge money-maker for Nvidia. The global gaming industry is expected to grow from $159 billion in 2020 to more than $200 million by 2023, and Nvidia can be expected to get a big part of that market.
Additionally, Nvidia’s next generation chips have other functions, as well. They will be critical to the global deployment of 5G technology that will increase the speed of wireless connections.
Nvidia’s GPU chips are also used in things like cryptocurrency mining and in the evolution of machine learning. So, in short, NVDA’s next-generation chips will make “smart” devices work even better.
Data center growth: This is also a pretty exciting avenue for Nvidia. In fact, data center business logged revenues of $1.14 billion in the company’s fiscal first quarter, compared to $634 million a year ago. That’s growth of 80%.
The company also closed its $7 billion deal in April to acquire Mellonox Technologies, which will greatly expand Nvidia’s position in cloud computing.
Nvidia CEO Jensen Huang told CNBC that once the merger is completed, Nvidia will have end-to-end technology. This includes AI computing to the network, as well as full-stack products like processors to software.
Even more expansion: Moreover, Bloomberg reported that Nvidia is in talks to buy Arm in a $55 billion deal that would be one of the largest tech acquisitions in history.
Arm was taken private in 2016 by chip designer Softbank (OTCMKTS:SFTBY) for $32 billion, so the size of the deal is notable. The deal would be a merger of the world’s largest GPU maker and the globe’s largest mobile chip designer.
That said, it would allow Nvidia to add mainstream mobile technology to its portfolio — which would increase the company’s footprint in the tech world. As InvestorPlace’s Robert Waldo reports, Nvidia has struggled to gain market share in mobile. Therefore, the deal solves a problem for NVDA stock.
Analyst sentiment: Overall, those in the know think that Nvidia stock still has plenty of room to run.
In fact, Raymond James analyst Chris Caso increased his price target for NVDA stock to $500, citing in part the expected Aug. 31 release of its new gaming chip.
Deutsche Bank analyst Ross Seymore, meanwhile, increased his price target for the stock from $315 to $405. This is because he expects “the company’s positive fundamental momentum to continue, especially given new product ramps in both Gaming and Datacenter.”
The Bottom Line on NVDA Stock
Collectively, it’s tempting to take some profits from NVDA stock here. However, given its dramatic growth so far in 2020, there are too many catalysts to ignore.
NVDA is proving itself to be the superior chip company to Advanced Micro Devices (NASDAQ:AMD) and Intel. And I’m not expecting to hear anything in Wednesday afternoon’s earnings report to convince me otherwise.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.