Nvidia (NASDAQ:NVDA) was among the best performing tech stocks of 2021. Although the stock did come under pressure this year, it has so far weathered the market-wide downturn relatively better than most of its tech peers. NVDA stock is down about 6% year-to-date (YTD) compared to the 9.5% drop for the Nasdaq 100 Index.
Industry-leading growth, solid product momentum, strong execution and innovation are all secret recipes that have powered the Nvidia growth engine. The only pushback now seems to be the stock’s stretched valuation.
Is Nvidia still a buy at current levels?
How NVDA Stock Makes Money
Nvidia derives the bulk of its revenues by selling gaming chips, predominantly to the PC industry. These graphic processing units (GPUs) also go into streaming services and console gaming devices.
The company is also heavily reliant on data center chips that power compute-intensive workloads such as artificial intelligence (AI), data analytics, graphics and scientific computing across hyperscale, cloud enterprise, public sector and edge data centers.
Professional visualization, automotive, and “OEMs & others” round up Nvidia’s business segments. The automotive business provides cockpit autonomous vehicles platforms, as well as AI cockpit and infotainment solutions.
Segment-wise Revenue Breakup For Nvidia In Q4’21
Nvidia took to the hot-and-happening metaverse by unveiling its Omniverse enterprise platform in April 2021. This platform is meant to facilitate real time collaboration of global 3D design teams in a shared virtual space.
Nvidia Evolving as Diversified Tech Play
Nvidia is not about merely chips anymore. It has developed a whole new array of products, bestowing on it the advantage of a diversified company.
The four-day 2022 GPU Technology Conference (GTC) underlined Nvidia’s ambitious plans. The company bumped up its long-term total addressable market opportunity to $1 trillion. The break-up works out as follows:
- Gaming: $100 billion
- Software (AI enterprise software & omniverse enterprise software): $300 billion
- Chips & systems: $300 billion
- Automotive: $300 billion
To put things in perspective, Nvidia is now seeing more potential outside of Gaming, which makes the biggest contribution to the top line.
Nvidia’s Hot New Technologies
Nvidia is currently targeting a massive AI inflection. At the GTC, Chief Executive Officer Jensen Huang announced updates to the company’s AI platform and the AI accelerated program that would ensure performance and reliability of AI applications developed by partners.
The Nvidia founder sees the company’s AI as the “software tool box of the world’s AI community.”
“Our GTC 2022 release is massive. Whether it’s creating more engaging chatbots and virtual assistants, building smarter recommendations to help consumers make better purchasing decisions, or orchestrating AI services at the largest scales, your superpowered gem is in NVIDIA AI.”
The auto end market is another promising opportunity for Nvidia, given the accelerated electric vehicle (EV) transformation that is underway. Team Green is cementing its position in the automotive segment with the latest Nvidia Drive Hyperion 8 platform and Drive Orin system-on-a-chip. The who’s who of the auto industry have all stitched up partnerships with Nvidia. The company puts the value of its automotive pipeline at over $11 billion.
Not to mention the metaverse opportunity. At the GTC 2022, the company announced Omniverse for developers.
Nvidia also launched Nvidia OVX, a computing system, to operate complex digital twin simulations that will run within the Nvidia Omniverse.
JPMorgan (NYSE:JPM) analyst Harlan Sur summarized Nvidia’s all-pervasive push as follows:
“With leading silicon hardware and software platforms and a strong ecosystem, Nvidia is well positioned to continue to benefit from major secular trends in artificial intelligence, high performance computing, gaming, and autonomous vehicles.”
NVDA Stock Trades at Elevated Valuation
Notwithstanding the recent pullback, NVDA stock is still trading at an elevated multiple of 51.08 times its forward earnings. This is amongst the highest in the industry. In comparison, AMD (NASDAQ:AMD) and Qualcomm (NASDAQ:QCOM) trade at forward price-to-earnings multiples of 28.09 and 13.18, respectively.
Nvidia’s trailing twelve months (TTM) price-to-sales (P/S) ratio is at 26.51. The metric is at 9.03 for Broadcom (NASDAQ:AVGO), 2.5 for Intel (NASDAQ:INTC), 8.52 for AMD and 12.31 for Marvell Technology (NASDAQ: MRVL).
Bottom Line on Nvidia Stock
Nvidia’s premium valuation may deter some investors. Sifting through the company’s performance metrics over the quarters, we see that the it has been able to grow revenues at a robust clip of 50% or more for seven straight quarters.
After bottoming in mid-2019, margins have been trending higher thanks to strong topline growth and operational efficiency. Nvidia is among those very few companies that consistently outperform relative to expectations on the bottom line. More importantly, Nvidia’s future holds a lot of promise as it finds itself in the sweet spot of cutting-edge technological innovation.
The recent pullback in shares presents an attractive entry point for those investors looking to ride the potential upside promised by this tech growth story.
On the date of publication, Shanthi Rexaline 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 InvestorPlace.com Publishing Guidelines.
