Nvidia (NASDAQ:NVDA) has been a perennial favorite among tech investors, especially when NVDA stock takes a breather in its upward mobility.
That’s what happened earlier this month when shares reached $573.86 on Sept. 2 then declined to $476.52 a mere six days later.
NVDA stock climbed back over $500 a few days later before settling back to $494.95 on Sept. 23. The last few days of September saw the stock topping $500 again to end the month around $541.
Does this mean that the dip in NVDA stock is over? Did potential and current investors wait too long to snap up some discounted shares?
A Look at NVDA Stock
The California-based technology firm is well known for its top-flight computer gaming hardware, including graphics power units and chips used in a variety of applications. Its fans, including InvestorPlace’s Matt McCall, describe it as “best in class” and the superlatives certainly seem an accurate assessment.
NVDA stock is up nearly 120% this year – during a global pandemic.
Here are some other numbers to consider. In the second quarter that ended July 26, the company reported record revenue of $3.87 billion, an increase of 50% from the same period a year ago and up 26% posted in the first quarter. Earnings per share were 99 cents, which marked a 10% hike year-over-year but a decline from $1.47 per share in Q1.
The company’s revenue from its data center segment totaled $1.75 billion. This represented an increase of 167% YOY and an increase of 54% from the first quarter. More on data centers shortly.
The company’s gaming division brought in $1.65 billion, an increase of 26% from the same period a year ago. Meanwhile, revenue from Nvidia’s professional visualization segment during Q2 was $203 million and the automotive segment revenue was $111 million.
Data Centers Boost NVDA Stock
Nvidia is making bold moves to strengthen its position in the data center environment. As you saw above, those data center activities are leading the company’s revenue these days.
On Sept. 14, NVvidia announced it had agreed to acquire Arm Limited, which was a subsidiary of Softbank Group (OTCMKTS:SFTBY) for $40 billion. Arm is based in the United Kingdom and that won’t change.
“We will expand on this great site [in Cambridge] and build a world-class AI research facility, supporting developments in healthcare, life sciences, robotics, self-driving cars and other fields,” Nvidia CEO Jensen Huang said.
In another recent development, Reuters reported that Nvidia and VMWare (NYSE:VMW) on Sept. 29 announced a joint effort to make VMWare’s data center software “work better with Nvidia’s artificial intelligence chips.”
VMWare’s software is used to make data center platforms handle more applications. VMWare, considered a leader in data center platforms, is adopting Nvidia’s processors and will integrate them into its platforms, according to Motley Fool.
Here’s the key point: Previously, VMWare had this relationship with legacy chip maker Intel (NASDAQ:INTC).
This alliance between Nvidia and VMWare is a major realignment in the tech world. Intel has been the dominant player in this field. The agreement with Nvidia is sure to make Intel shareholders uncomfortable – and they have had reason to be uneasy before this accord was reached.
The Bottom Line
Tech stocks often trade for a premium compared to other areas of the stock market. And NVDA stock is no exception. Nvidia shares are trading for about 20 times revenue. This figure strikes some market observers as meaning Nvidia stock is overvalued. And it may be overvalued. Is it too overvalued? That is a decision that each investor has to make.
Meanwhile, the company continues to make bold strategic moves to enhance its place in the industry. Nvidia is building on its reputation for fast, reliable gaming chips to become a major player in the emerging data center area.
NVDA stock looks poised to recover lost ground. Investors interested in tech stocks should take advantage of dips in the stock and go along for the ride.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.