For most, 2020 has been a wretched year. But not for Nvidia (NASDAQ:NVDA) stock.
The chip giant is enjoying a lot of momentum in its data center and gaming business. It finds itself in perhaps the most fortuitous time in the past several years, with massive growth opportunities for the future. Hence, NVDA stock is up by a whopping 119% since the start of the year.
Pandemic-era results for the company have been nothing short of extraordinary. Through the first half of the year, revenue and net incomes are up by a healthy 45% and 90%, respectively. With NVDA stock trading at over 20 times its revenues, many wonder if its valuation is inflated.
That notion though, couldn’t be any farther from the truth. Nvidia finds itself amid a massive upgrade cycle with the launch of the next generation gaming consoles. Its latest graphics cards represent a huge performance leap and come at a compelling price.
Moreover, it acquired SoftBank Group’s (OTCMKTS:SFTBY) subsidiary Arm Limited to complement its growing data center business. Therefore, there’s a lot to be excited about if you’re an Nvidia investor.
RTX 30 Represents the Industry’s Finest
Nvidia’s RTX 20 series cards were somewhat of a letdown. Many gamers felt that they were underwhelming in terms of performance and price. However, the companies latest RTX 30 line, which essentially trumps its processors on all accounts.
CEO Jensen Huang stated that the RTX 30 line is arguably the company’s “biggest leap in computer graphics in 15 years.” Especially in ray tracing, with its cutting-edge Turing architecture, which uses deep learning super sampling (DLSS) in rendering realistic images.
However, the company faces stiff competition from the likes of Advanced Micro Devices(NASDAQ:AMD), which is ramping up its GPU game. Despite the competition, though, Huang says that gaming revenues will remain solid through the second half of the year.
Furthermore, Huang stated that there are significant tailwinds across different segments for its gaming products. Firstly, esports players are always looking for an efficient graphics card with faster processing speeds due to the high frame rate requirements. Then there are the traditional gamers, who are gearing up for the launch of the next generation of games this fall.
Another catalyst that potentially makes a comeback for the company is cryptocurrency. Cryptocurrency miners generated more than $600 million in graphic card sales for Nvidia in 2017. This bumped revenues for the gaming segment to $5.5 billion, a 36% increase year-over-year.
Some experts believe that history could repeat itself with the company’s latest RTX 30 cards. These cards have a higher hash rate enabling miners to mine three to four times faster than the RTX 2080. Hence, it could perhaps bring bumper gains for the company this year and 2021.
Data Center Business Is On the Rise
It’s no secret that Nvidia is aiming to become a significant player in the data center business. It is investing in different technologies to complement its data center business. It recently completed its Mellanox deal to expand on its networking competencies and a $40 billion buyout of Arm limited to juggernaut computing company in the AI age.
With its acquisition of Arm, it hopes to integrate its AI and GPU technologies with Arm’s extensive designs. “Uniting Nvidia’s AI computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe,” Huang says.
Arm is likely to benefit from Nvidia’s robust software platform, while Arm’s R&D capabilities will help create synergies for Nvidia’s data center solutions. Moreover, the company will also rake in massive revenues through Arm’s technology licensing business. Huang said that the acquisition of Arm would take Nvidia’s addressable market to roughly $250 billion.
Final Word on NVDA Stock
NVDA stock has had a stellar year so far, and the trend should continue into the second half. The catalysts in its different businesses essentially make it a no-brainer investment. Contrary to popular opinion, the stock isn’t inflated, as its lofty value is justified. It’s currently trading at 7.2% lower than its mean price targets, and with high estimates of $700, it’s best to load up on it now.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.