In September 2018, I predicted that Nvidia (NASDAQ:NVDA) would hit $500 by the end of 2020. As I write this partway into August, NVDA stock is just $53 away from reaching its target.
Before I pat myself on the back, I also predicted that Advanced Micro Devices (NASDAQ:AMD) wouldn’t hit $45 by the end of this year. Well, unless AMD stock has a colossal collapse over the next five months – it’s currently almost double the target – it’s clear as day my predictive capabilities are, at best, 50%.
If this were baseball, I’d be in the Hall of Fame, but I digress.
There’s no question AMD Chief Executive Officer Lisa Su has done a tremendous job transforming the company, and in the process, rewarding shareholders in a big way.
In August 2019, when rumors were flying about Su departing for IBM (NYSE:IBM), I said it would be terrible for AMD. A year later, nothing’s changed. If she were to leave the company, it would be tough for it to keep moving forward, but you don’t achieve the kind of long-term success Su has without a strong management team.
Ultimately, when Su does leave, she will depart with the company in a much better place than when she took the job in October 2014. That’s the hallmark of a good CEO.
Jensen Huang Is Pretty Good, Too
Another good CEO is Nvidia’s chief executive and founder, Jensen Huang. He’s built the company from something focused on PC graphics to a business with multiple revenue streams, the two most prevalent being data centers and gaming.
In the latest quarter, its Graphics segment, the larger of its two reporting units, grew revenues by 25% to $1.9 billion, while its Compute & Networking segment boosted sales by 69% with a substantial contribution from data center-related business.
I’ve always felt what sets Nvidia apart is its cash generation. In the three months ended April 26, it had free cash flow (FCF) of $754 million, 27% higher than a year earlier. In the trailing 12 months (TTM), it generated $4.43 billion in FCF, $160 million more than at the end of January.
Importantly, its TTM FCF is more than 7x that of Advanced Micro Devices.
In June 2019, I argued that Nvidia’s free cash flow made it a great buy on the dip. At the time, it was trading around $145. In hindsight, it was obscenely cheap. Now, it’s probably reasonably valued, but not outrageously expensive.
So, how fast can it get to $1,000? If I know Nvidia, more quickly than anyone can imagine.
NVDA Stock First Has to Reach $500
InvestorPlace’s Muslim Farooque recently discussed why Nvidia stock is going to hit $500 in the near future. Given it’s only $47 away, I don’t think there’s any doubt it will. I’m more interested in my colleague’s thoughts on the company.
Gaming, which generated 43% of the company’s $3.08 billion in revenue in the first quarter, is expected to benefit from the new gaming consoles out later this year.
Here’s what Farooque wrote on Aug. 6:
“Nvidia’s share of Steam gamers is roughly 73.5%, and only 9% of them own a GPU that matches the performance of the next-generation consoles in the PS5 and the Xbox Series X. Therefore, the release of these consoles could prompt a massive upgrade cycle for Nvidia users to its Turing or the next-gen 7nm Ampere GPUs. These developments could help bolster Nvidia’s Gaming business, which has struggled a fair bit due to supply chain disruptions and closure of retail outlets during the Covid-19 pandemic.”
My colleague finished his article by calling it a strong buy based on the fact gaming’s going to get a boost over the remainder of the fiscal year, data center-related revenues will continue to grow at an accelerated pace, and its other revenue streams will more than hold their own.
In July, I commented that AMD stock would eventually get out of its funk and go on a run because its results were too darn good not to be rewarded. Since July 20, it’s up 51%. I’d say it’s out of its funk.
In that same article, I noted that NVDA and AMD stocks tend to run hot and cold at different times. Now that it’s had a bit of run, and Nvidia’s business is looking strong, I’d be surprised if it didn’t pass $500 by the end of September, perhaps sooner.
If you can afford to buy both, do so. If you can only buy one, I’d go with Nvidia as it looks ready to shine.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.