Today’s discerning gamer demands nothing less than the best when it comes to graphics. There’s a war going on among businesses that manufacture consumer graphics cards, and among the winners is Nvidia (NASDAQ:NVDA). The proof is in the pudding as NVDA stock has been on a tear in 2020 despite the novel coronavirus pandemic.
If you haven’t played any new video games in a while, you might be amazed at how far they’ve come in terms of graphics. Among the latest trends is what’s known as ray tracing. This graphics innovation renders lighting and shadows in a way that allows today’s games to appear more realistic.
As the graphics card battle heats up, investors should count on Nvidia to develop better and more powerful components. Indeed, the company is already upgrading its graphics card offerings, making it more difficult for competitors to keep up, not to mention steal Nvidia’s share of the market.
A Closer Look at NVDA Stock
Traditional value-focused and income-oriented investors might be bothered by the following stats. First of all, NVDA stock has a trailing 12-month price-earnings ratio of 101.24, which admittedly is rather high.
Then there’s NVDA stock’s paltry forward annual dividend yield of 0.12%. With that, it’s important to keep in mind that you can only earn substantial returns on NVDA shares if the price keeps going up.
At the very least, we can say with confidence that the bulls are firmly in charge of the price action in NVDA stock. At the beginning of September, the shares were trading at close to $575 apiece. That’s quite a bit higher than the February pre-pandemic peak of around $315.
Raising the Bar
Is the stock still a good value, then? It would be worth owning at nearly any price (within reason) if the company can retain its leadership position as a graphics card innovator.
In order to meet the demands of today’s finicky gamers, Nvidia is releasing its state-of-the-art RTX graphics cards series. With this, Nvidia is embarking on what CFO Collette Kress has characterized as a “powerful upgrade cycle among gamers.”
CEO Jensen Huang even went so far as to say about the RTX graphics cards, “there’s never been a giant leap like this. And RTX brought both artificial intelligence as well as ray tracing to PC gaming … RTX, it’s a home run. We really raised the bar with computer graphics, the games are so beautiful, and it’s really, really the next level.”
So, the Nvidia CEO won’t win any points for modesty when it comes to the RTX graphics cards. But why be coy when you have what might conceivably be the best product in the business?
More Games, Better Components
Besides, it’s a great time to be a mainstay in the video game components business. The lineup of games to be released during the upcoming gaming season is impressive: Star Wars: Squadrons, Marvel’s Avengers, Assassin’s Creed Valhalla, Cyberpunk 2077, Spider-Man: Miles Morales, Crash Bandicoot 4 and Watch Dogs: Legion.
It’s perfectly fine if you’re not watering at the mouth over those video game titles. Just know that there are hordes of gamers out there, ready to pay a premium price for these releases.
Moreover, if any graphics cards can handle the intense requirements of these modern games, it would be the RTX series. To facilitate this, Nvidia’s RTX graphics cards utilize Turing architecture.
This helps to render ultra-realistic images on the screen through a process known as deep learning super sampling. Thus, it leverages artificial intelligence to enhances Nvidia’s already robust components.
The Bottom Line
Traditional investors don’t have to consider NVDA stock cheap if the P/E ratio bothers them. Understand, though, that there’s nothing traditional about Nvidia. The company stays on the cutting edge and, old-school metrics notwithstanding, there’s plenty of value in that.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.