On Friday, the U.S. Bureau of Labor Statistics published May inflation numbers. They weren’t pretty. The 8.6% inflation rate was the fastest increase since December 1981. That sent the market into a panic, and Nvidia Corporation (NVDA) stock certainly felt it. NVDA stock closed on Friday down 5.95% for the day.
The concern is that when economic conditions are tough, consumers will have less disposable income to spend on things like new graphics cards for their PCs. The product that is (or, was — more on that shortly) Nvidia’s bread and butter. That’s on top of concern that the GPU market could be upended by the arrival of Intel (NASDAQ:INTC). With that company’s new Intel Xe GPUs, Nvidia and rival Advanced Micro Devices (NASDAQ:AMD) no longer have the market to themselves.
However, the game is changing for Nvidia as well. Last quarter, the company’s Data Center revenue surpassed Gaming revenue. The strong growth of that Data Center segment is why neither inflation nor Intel worries me. NVDA stock will continue to be in a strong long-term growth position. Last Friday’s drop is just the latest opportunity to buy Nvidia stock at a great price.
| NVDA | Nvidia | $155.38 |
Data Center Revenue Overtook Gaming Last Quarter
When we talk about Nvidia, the conversation is around GPUs. Specifically, it tends to be around graphics cards like the uber-popular GeForce RTX 30 series. These continue to be in hot demand among gamers and sell faster than Nvidia can make them. Historically, these cards make up the company’s Gaming division, which brings in the bulk of the company’s revenue.
It’s fair to say that those graphics cards have been the primary driver of NVDA stock.
That changed last quarter. On May 25, Nvidia reported its first-quarter fiscal 2023 earnings. Gaming revenue of $3.62 billion was a record-setter and up 31% year-over-year.
However, Data Center revenue was up a whopping 83% YOY. And at a record $3.75 billion, it eclipsed Gaming revenue. This is a big deal and it bodes very well for the future performance of NVDA stock.
The company’s GPU-powered servers including the new Grace Hopper and Grace CPU superchips are making inroads into data centers — traditionally Intel territory. Demand is skyrocketing for advanced capabilities like AI to power next-gen platforms like the metaverse.
Nvidia is excelling here. This doesn’t mean gaming isn’t still very important to Nvidia. It is. But the company is no longer reliant on it. And it happens to be making big inroads in a data center market that is projected to grow astronomically to meet coming demand.
What About Intel?
Should Nvidia investors be losing sleep about Intel? After all, this is the company that has dominated data centers since the first one was built. And it is now taking aim at Nvidia’s core market of PC gamers with its own graphics cards.
First, Intel’s CPUs are no match for Nvidia GPUs when it comes to the needs of many modern data centers. Intel is losing share, while Nvidia is rapidly growing. Last April, INTC stock suffered a big drop after it was revealed its data center chip sales had dropped by over 20% YOY. There’s no question, Nvidia is in the ascendency here.
In terms of graphics cards for laptops and desktop PCs, it’s possible that Intel will take some marketshare from AMD and Nvidia. However, being competitive and besting the performance of the market leaders are two very different things. An Intel GPU is highly unlikely to outperform an equivalent Nvidia GPU any time soon.
In addition, Intel has a chicken and egg problem. Until game makers release drivers to support Intel GPUs, demand is unlikely to take off — no matter how good those graphics cards might be. But with the vast majority of players using Nvidia or AMD graphics cards, game makers will be reluctant to spend the time and money on Intel drivers.
In short, nothing that Intel is doing makes me lose sleep about the impact on NVDA stock.
Bottom Line
Do you need more reasons to buy NVDA stock? For starters, it earns a solid “B” rating in Portfolio Grader. Demand for ultra-powerful servers to power data centers is a big part of the company’s future, but if you want to see even more catalysts for growth, check out this post.
The company is about to release the largest wave of new products in its history and besides the areas I’ve already touched on (plus gaming), the list of target markets also includes AI, robotics, and self-driving cars.
Yes, inflation could cut into consumer spending — in the short-term. Yes, NVDA stock dropped 5.95% on Friday, once again bringing it near 2022 low territory. Smart investors with a focus on long-term growth recognize that drop for what it is: an opportunity.
On the date of publication, Louis Navellier had a long position in NVDA and AMD. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
