Categories Analysis, Technology

Nvidia (NVDA) Stock: Consider these factors before investing

The stock rallied after the company posted broad-based revenue growth and strong earnings for the second quarter

The high demand for online gaming content and fast-paced digital transformation during the shutdown helped Nvidia Corporation (NASDAQ: NVDA) emerge as a clear pandemic winner. The chipmaker’s graphic processors are dominating the market, powering new-generation gaming machines. With its innovative artificial intelligence chips, the company is strengthening its footing in the AI space also.  

A Wise Bet

In the first week of July, NVDA had grown to a record high after gaining as much as 58% since the beginning of the year. Interestingly, the stock looks all set to resume the rally after the recent pullback. Its potential to create shareholder value and achieve sustainable growth can outweigh investor concerns over the relatively high valuation. Currently, there are multiple factors creating a rare buying opportunity that serious investors wouldn’t want to ignore.

Read management/analysts’ comments on Nvidia’s Q2 earnings

Gaming business, which accounts for nearly 50% of Nvidia’s revenue, is considered recession-proof due to steady demand growth and the proliferation of online gaming platforms. It is worth noting that sales were not affected even in the worst of market scenarios, underscoring the resilience of the company’s graphic processors. The state-of-the-art GPUs, which also accelerate the performance of third-party CPUs in computing systems, have outsmarted rivals like Intel Corp. (NYSE: INTC) and Advanced Micro Devices (NYSE: AMD). Meanwhile, the company’s cloud gaming service GeForce NOW is considered a potential game-changer.

AI Prowess

Artificial Intelligence, a rapidly growing field where Nvidia’s microprocessors are making a strong presence, is becoming pervasive across all industry verticals, ranging from self-driving cars to smartphones. The company has enhanced its AI capabilities by acquiring UK-based tech firm Arm. The first high-end data-center chip under the partnership, called Grace, was rolled out in April.

Nvidia Q2 2022 earnings infographicNvidia Q2 2022 earnings infographicNvidia Q2 2022 earnings infographic

In a significant move, Nvidia forayed into cryptocurrency processors, which are dedicated chips for mining digital currencies, eliciting encouraging responses so far. While fulfilling the long-pending demand for fast and efficient mining systems, the new product positions the company to tap into the vast opportuning the crypto market offers.

The fact that we could automate truck driving and last-mile delivery providing an automated chauffeur, those services and benefits and products are never imaginable before. So the size of the IT industry, if you will, the industry that computer companies like ourselves are part of has expanded tremendously. And so, the thing that we want to do is to invest as smartly but as quickly as we can to go after the large operating — large business opportunities, where we can make a real impact. And in doing so — while doing so, to do so in a way that is architecturally sensible.

Jensen Huang, chief executive officer of Nvidia

Broad-based Growth

The stock rallied after the company posted broad-based revenue growth and strong earnings for the second quarter. At $6.5 billion, revenues were up 68% year-over-year and above analysts’ forecast. Consequently, earnings increased sharply to $1.04 per share and topped expectations. The management issued positive guidance for the third quarter.

After making strong gains following the earnings announcement, the stock opened Thursday’s trading sharply higher and maintained the uptrend in the early hours of the session. It has gained 7% in the past 30 days and is once again hovering near last month’s peak.


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