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Is Nvidia’s New Gaming Service Worth $15 Billion in Extra Market Cap?

By now, investors are well aware of Nvidia’s (NASDAQ:NVDA) Oct. 21 announcement about its GeForce NOW RTX 3080 membership that allows gamers to stream more than 1,100 video games at up to 1440p at 120 FPS. Yet, despite all the excitement, NVDA stock only popped 2.7% on the day.

Metaverse stocks: kid in front of a computer screen playing video games
Source: Shutterstock

However, with almost 2.5 billion shares outstanding, Nvidia’s market capitalization gained $14.7 billion in one day of trading. That single-day gain is greater than the market caps of 88 of the companies in the S&P 500.  

So, I’m wondering whether the someday trillion-dollar company deserved a nearly $15 billion bump in its market cap. Here’s one nontechie’s opinion on the matter.

RTX 3080 Presents an Opportunity, but How Big Is It?

Nvidia’s GeForce NOW membership currently stands at more than 12 million gamers. If every single member opted for the RTX 3080 membership, which costs $200 per year, that would be $2.4 billion in annual revenue.

In fiscal 2021, the company’s Graphics segment generated $9.83 billion in revenue. GeForce NOW is part of that unit. While I have no idea how much revenue the company generates from its GeForce NOW streaming service, I’m confident it’s nowhere near $2.4 billion. I’m also confident all 12 million members won’t sign up for the $200 full-year offer, even though it seems like a pretty good deal for serious gamers. 

I’m not one. Not even close. However, at the end of September, Nvidia’s press release announcing its partnership with Electronic Arts (NASDAQ:EA) made a statement that sticks out to someone who’s not a computer nerd:

“GeForce NOW allows Electronic Arts games to be played with legendary GeForce® performance by gamers who may not have a gaming PC — that includes more than 1 billion underpowered PCs and incompatible devices, like phones, tablets and Chromebooks. Nearly 80 percent of the devices that currently access GeForce NOW would not otherwise be capable of playing the latest PC games.”

The ability for underpowered or incompatible devices to access the latest games with enhanced performance will certainly help broaden the appeal of the newest membership tier. If 10% of the 1 billion underpowered PC owners were gamers and 10% of those people paid the $200 annual membership, that would get pretty close to the $2.4 billion figure mentioned previously.

Were that to happen, what seems like an inconsequential part of Nvidia’s business suddenly would be contributing more than 10% of the Graphics segment’s annual sales. Every little bit helps. That’s especially true for a company with almost 34% operating margins

Maybe There’s Nothing There There

The Motley Fool’s Rich Smith has a different take on the news. He’s not convinced there’s much to the recent announcement. At least not enough to justify almost $15 billion in additional market cap. 

Smith points out that a chunk of the 12 million players on the platform are likely playing for free. So, getting them to pay $200 each year for a GeForce NOW RTX 3080 membership seems like a big leap. 

Interestingly, The Verge points out that Nvidia will begin by offering the $200 deal to its existing Founders and Priority GeForce NOW members in the United States and Europe. So, that rules out the non-paying riffraff as far as I can tell, which also means it lowers the potential revenue in the near term. 

Like a lot of things in life, the answer is probably somewhere in the middle. Therefore, it’s safe to say this isn’t a gamechanger for Nividia, but it’s also not insignificant. It will improve the game-playing experience for a large number of gamers and bring in additional revenue for the company.  

The Bottom Line on NVDA Stock

Although Nvidia’s market cap is $577 billion as I write this, the questions about when it will join the trillion-dollar club have already started. 

I continue to be a big fan of Nvidia CEO Jensen Huang. If anyone can get the company to a $1 trillion market cap sooner rather than later, it’s Huang.

Looking back in a few years, I don’t think the $200 membership will be what put Nvidia over the top. However, that doesn’t mean it won’t have an important part in getting it there. 

After all, the GeForce NOW RTX 3080 membership will have some of the company’s best technology on display. That makes the streaming service the tech equivalent of a billboard. Advertising works.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

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