Technology stocks have been some of the unquestionable winners in an otherwise disastrous market coming to grips with the novel coronavirus pandemic. It’s not hard to see why: unlike the vast majority of the market, tech companies see Covid-19 as a tailwind. So it’s no surprise that semiconductor firm Nvidia (NASDAQ:NVDA) has exploded to blistering all-time highs this year. At time of writing, NVDA stock is trading hands above $525.
But even among tech firms Nvidia elicits envy for its double Covid-19 catalysts. Let me explain.
NVDA stock has always outperformed thanks to its underlying graphics processing units (GPUs). Nowadays, video games are serious business, no longer relegated to a niche consumer base. Instead, it’s a little weird if you don’t play video games, a sharp shift from previous generations.
Further, GPUs form the basis for playing some of the most advanced gaming titles at incredible framerates. No matter what, Nvidia was going to benefit thanks to its leadership in the GPU space. But with the pandemic forcing everyone indoors, the narrative for NVDA stock becomes that much stronger.
I’m not just saying that based on anecdote. According to information compiled by Games Sales Data and Nielsen, the U.S. saw a 45% increase in time spent playing video games in March of this year. At the same time, France witnessed a 38% uptick, while gamers in U.K. and Germany boosted their playtime by 29% and 20%, respectively.
In addition, video games are no longer played exclusively for recreation. For instance, many Formula 1 race car drivers are avid gamers, utilizing simulators to keep their skills sharp. Typically, ultra-high-end gaming rigs are powered by Nvidia GPUs, thus further driving the bullish narrative.
For NVDA Stock, Servers Matter Too
Despite the enormous interest in video games during our new normal, Nvidia’s management team would like you to know that NVDA stock isn’t just about gaming. That’s according to Barron’s contributor Max A. Cherney, who stated that the company is trying to push investors toward its data center business.
To be sure, Nvidia has every incentive to market this burgeoning industry. According to Cherney:
“Nvidia executives have made the case that the company’s networking business — the $6.9 billion all-cash acquisition of Israeli networking equipment maker Mellanox Technologies — is crucial to long-term plans, too, because networking connectivity plays an important role in data-center design. Mellanox sales grew to $540 million in the fiscal second quarter, or 14% of Nvidia’s overall sales.”
Granted, the data center business isn’t as sexy as video games. But for NVDA stock, this storyline is much more appealing over the long run.
In recent weeks, many political pundits have noted the huge discrepancy between record equity market valuations in the stock market and the economic desperation afflicting lower-income households.
Perhaps most glaringly, the Conference Board Measure of CEO Confidence noted that chief executives demonstrated a slight uptick in confidence. At the same time, the University of Michigan’s consumer sentiment index shows that everyday American confidence lingers at multi-year lows.
Cynically, the Conference Board notes that “38 percent of surveyed CEOs expect to reduce their workforce. Moreover, 37 percent say they will trim their capital spending budgets by 10 percent or more.”
Of course, the execs are happy. Most of these tone-deaf high rollers spend their working days looking for ever more clever ways to screw the American worker and juice profits for shareholders. Covid-19 provides the perfect opportunity for restructurings and fat-trimming. And Nvidia’s data center technologies help facilitate the shift towards automation.
Cryptocurrencies Present Another Sub-Catalyst
Now, before anyone starts penning me hate mail, please note that I’m not implying that Nvidia is responsible for the destruction of the American workforce. CEOs are looking for ways to cut costs. With technology replacing or automating so many business functions, it’s inevitable that Nvidia will find itself facilitating this disruption. This has nothing to do with how I feel about NVDA stock, which is a name you want.
That’s because Nvidia’s diverse portfolio means that it’s currently receiving organic opportunities thanks to the topsy-turvy world we live in. Most notably, cryptocurrencies are back in vogue. Due to virtual currencies’ inherently democratic and accessible nature, I foresee the entire sector moving higher.
If so, sharply rising prices makes cryptocurrency mining more economically feasible. And that would bode well for Nvidia’s mining-centric GPUs.
Of the high-flying names that we’ve seen this year, NVDA stock is one of the investments that doesn’t draw concerns about its premium. Sure, you should wait a bit for any discount. But the underlying fundamentals are so powerful across the board that you may not want to wait too long.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
