Nvidia (NASDAQ:NVDA) stock is finally getting the credit it deserves.
Despite the company turning in stellar quarter after stellar quarter, NVDA stock just wouldn’t budge. In fact, After topping out on Sept. 2, 2020, shares were essentially flat (down less than 1%) as recently as May 20, 2021.
For some investors, that’s one of the most frustrating things. The company reported several excellent quarters in that stretch. Guidance continued to climb, as did analysts’ expectations, Nvidia’s GTC conference in May was impressive and the company finally split its stock.
In any regard, despite all this great news, NVDA stock mostly traded sideways. Well, patient investors were eventually rewarded. Now’s not the time to give up on Nvidia though. Here’s why.
Long-term secular growth is the No. 1 reason that Nvidia has been one of my longest-held stocks. It helped that I have attended the company’s GTC’s conferences in the past. Not that it gave any sort of “insider” looks into its offerings. But it allowed me to see first-hand just what the company was doing and how its products were accelerating multiple industries all at once.
If I’m being honest, maybe that’s a form of confirmation bias and I was only seeking information that confirmed my own beliefs. Perhaps it wasn’t. It doesn’t matter now, as the company has delivered on those expectations – and then some.
Its products are fueling strong growth in autonomous driving, datacenters, artificial intelligence and machine learning, gaming, graphics, computing power, supercomputing, drones, robotics and more.
All of these end markets not only represent growth, but they represent long-term secular growth. The difference? Regular growth – also known as cyclical growth – may be a nice boost for a few quarters or a few years, but eventually wears off. Secular growth just keeps going.
When I look at these end markets, that’s what I see – long-term growth that will just keep going.
Analysts expect 54% revenue growth this year to $25.75 billion and 65% earnings growth to $4.14 per share. That’s after 52% revenue growth last year.
However, consider this. As of Jan. 1. and despite all the momentum Nvidia had coming into this year, analysts expected just over $16 billion in sales. That estimate now – as it says above – sits at almost $26 billion.
For next year, analysts currently expect 13% revenue growth to $29 billion. At the start of this year, those expectations were a hair under $20 billion. Could they be too conservative again?
We’re talking about a company that did $10.9 billion in sales in fiscal 2020 and that’s forecast to do almost $30 billion in revenue in fiscal 2023. Now’s not the time to give up on NVDA stock.
M&A Provides Value for Nvidia Shareholders
That last section was kind of long, so we’ll keep this one short and sweet. When Nvidia makes M&A moves, it tends to be quite accretive to its business.
In April 2020, Nvidia closed on its $6.9 billion acquisition of Mellanox. For the deal, the company said, “Once complete, the combination is expected to be immediately accretive to NVIDIA’s non-GAAP gross margin, non-GAAP earnings per share and free cash flow.”
It was the company’s largest acquisition and Nvidia outbid Intel (NASDAQ:INTC) to get it. That said, the company didn’t overpay for Mellanox, which provided strong value for its shareholders.
Will Arm be the same way, despite it coming with a much loftier price tag at $40 billion?
I look at the Arm deal in one of two ways. First, if the deal is approved, Nvidia will go from virtually unstoppable to actually unstoppable, as Arm has such a great business and a huge portfolio of products. It even includes Apple as one of its clients.
On the flip side, regulatory approval is the largest risk here. If it fails, then Nvidia keeps a huge swath of cash on its books and can pursue other opportunities. That said, Nvidia has proven that it can create value with its acquisitions and I would expect Arm too as well if it gains regulatory approval.
Trading Nvidia Stock
Maybe I am wrong with this one, but I firmly believe that Nvidia is on its way to a $1 trillion market capitalization in the future. Back in March, I said NVDA stock was a steal below $50. I didn’t know how close we were to the bottom, but I knew Nvidia’s business too well and knew it was undervalued.
We are up a great deal since then and Nvidia has been a relative strength leader, up 60% so far this year.
In the short-term, I’d like to see NVDA stock find its footing here in the $205 to $210 area. Not only does it have the 10-week and 50-day moving averages here, but it’s also the prior breakout spot.
If the stock breaks down further, the 21-week moving average isn’t out of the realm of possibilities. A real sell-off could land it down around the 200-day moving average, which has been a great buying opportunity over the last few years.
Regardless of what NVDA stock does in the short term, I am a buyer for its long-term potential.
On the date of publication, Bret Kenwell held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.