At first, markets reacted poorly to Nvidia’s (NASDAQ:NVDA) stock’s first-quarter report in after-hours trade. On May 25, 2022, NVDA stock lost almost 10%. When markets opened the next day, investors renewed their upbeat view of the graphics card chip supplier.
Investors should count on the company’s strong performance in the last quarter despite the macroeconomic headwinds. It outperformed the industry.
As stock markets, especially the tech sector, punish the weakest players, NVDA stock will stand out well from here.
| NVDA | Nvidia | $195.92 |
Momentum From Strong First-Quarter Revenue
In the first quarter, Nvidia posted revenue growing by 46% year-over-year to $8.29 billion. The board of directors signaled their confidence in the business by increasing and extending its stock buyback program. These are unprofitable firms that enrich executives with stock-based compensation. Nvidia will buy back up to $15 billion in shares through December 2023.
The company expects to post between $8.10 billion and $8.44 billion in revenue in the second quarter. This includes a $500 million negative impact from China’s lockdown due to Covid-19 and to Russia. Nvidia easily justifies the nearly 50 times price-to-earnings ratio. The company expects GAAP gross margins of 65.1%, plus or minus 50 basis points.
Nvidia’s GeForce Gaming GPU has a big installed base. Gamers want ray tracing from its RTX product. The company benefits as PC game developers embrace RTX-optimization. As a result, gamers choose Nvidia RTX over that offered by Advanced Micro Devices (NASDAQ:AMD) 6000-series RX GPUs.
Catalysts for Strong Long-term Outlook
The gaming cycle is nowhere near over. In the last two years, the business almost doubled. The gaming industry added almost 100 million new gamers in that time. In addition, the format is still expanding. Gamers connect with friends and influence others to join the platform.
Corsair (NASDAQ:CRSR) anticipates more broadcasters will need the tools to influence others. The high-end gaming supplier unveiled its first gaming laptop. It designed the computer for Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube and Amazon.com’s (NASDAQ:AMZN) Twitch broadcasters.
For example, the laptop has a 1080p webcam and a touch bar. Corsair previously cited the increased availability of graphics cards at lower prices would lift sales. Nvidia is one such supplier.
Nvidia’s H-100 is a positive driver for its data center business. The industry needs improved I/O (input/output) performance through the Gen 5 Hopper architecture. Scientific computing, machine learning and training, and data processing each require higher performance solutions.
Nvidia continues to innovate on chip-to-chip interconnects. It is on its fourth generation of NVLink. This allows it to connect two chips next to each other. NVLink widens its potential because Nvidia may match different chips in many more configurations.
Buy NVDA Stock From Here
The supply constraints for Nvidia are not an issue from here. Prices are falling, too. Now that consumers may buy GPUs at reasonable prices, unit sales will rise. NVDA stock is hardly reflecting this potential for 2022.
Nvidia’s quarterly report on May 25, 2022, marked an inflection point. The company reaffirmed its long-term growth prospects in the PC gaming market and servers.
Investors should consider buying an incremental position in the stock from here.
On the date of publication, Chris Lau 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.
