Buying Into Nvidia’s Semiconductor Conduct
Nvidia has been making moves this past year and the stock price is at its peak, but can this trend last?
As of late, many investors have been keeping a watchful eye on the semiconductor industry, and as a result, Nvidia has fallen under their watchful gaze. The company, though primarily thought of as a semiconductor producer and known by the public for their graphics processing units, has expanded its operations into cloud-based gaming services, mobile computing, artificial intelligence, and data centers. I recommend Nvidia as a growth stock for any investor, one that is worth keeping in your back pocket for years to come.
The most telling metric to analyze when it comes to Nvidia is it’s price history, both over the short-term and the long-term. As of the time of writing, (NASDAQ:$NVDA) is selling at a PPS of $678.79, up 37% in the past three months, 30% YTD, and an astonishing 93.57% in the past year. Just two years ago, it was trading at about $150; look back five years, and it was at just $30. This explosive growth is representative of how well the company has reacted to the expansion in the semiconductor market, an industry still in its heyday.
In addition, it’s invaluable to look at Nvidia’s financial reports for the first quarter of the 2022 fiscal year, as they reinforce the optimistic outlooks for the stock. The financial statements reported an overall first quarter revenue of $5.66 billion, up 13% from the previous quarter and 84% from the same time last year. Their quarterly EPS came in at $3.66, up 18% from the previous year and beating investor expectations by 11%. These gains were recognized in all of the areas in which Nvidia operates. From the prior year, gaming revenue was up by 106%, datacenter revenue was up 79%, and professional visualization was up 21%. The outlier here was in automotive processors, down 1% from the previous year, which can be attributed to the global semiconductor shortages.
Now compare Nvidia’s growth to other similar stocks in the technology sector and more specifically the semiconductor market. In regards to the market, holistically, global revenues rose 10.8% year-on-year in 2020, Though there are rather few players here, a meaningful comparison can be made between Nvidia and its competitor Advanced Micro Devices (NASDAQ:$AMD). Admittedly, AMD’s growth is comparable to Nvidia’s, boasting a 93% growth in revenue and an EPS up 189% from the previous year. But despite AMD’s growing market share in GPUs and CPUs for personal computers, I still see Nvidia as the clear long-term winner for its market diversity and forward thinking.
And Nvidia is choosing to take risks here in treading freshly turned ground. Their telecommunications branch is implementing Nvidia infrastructure in emerging 5G wireless networks and their automobile branch has already partnered with DiDi Autonomous Driving and Volvo to integrate Nvidia hardware in a new fleet of autonomous drive-ready cars. Though some may see these ambitions as risks that the company is taking to expand their influence in multiple sectors, I find this to be a means of establishing an early stake in markets that are most certainly guaranteed to develop over the next decade.
Now for the investors that may be deterred by the hefty stock price, Nvidia recently approved plans for a four-for-one stock split, once again increasing the number of authorized shares of common stock, this time to 4 billion. Now, this has little to no impact on the fundamentals of the company, and the announcement rallied the stock out of the sheer excitement of shareholders, but what it does mean is that the share price will be much more accessible to future investors. This decision is a clear sign that they value the liquidity and expect greater future interest among a larger pool of shareholders.
Another very valid concern is that Nvidia could be overvalued, as it is sitting at a PE ratio of 82 compared to its competitors that average around 35. In addition to this, concerns have been circulating about a potential technology stock bubble burst later this year, as well as a complete supply chain breakdown for semiconductor producers. These claims are not entirely unfounded, but I firmly believe that Nvidia’s solid financial statements can support a high PE ratio, and that its foundations are solid enough to weather any storm short of a complete societal collapse.
So, the million-dollar question here still stands as “Am I too late to invest into Nvidia?” My answer is a resounding no. Considering the resiliency with which the semiconductor market has reacted to the global semiconductor shortages, the sheer diversity of operations that Nvidia is undertaking, and the ever-growing need for semiconductors in automobiles, 5G networks, and computing, I expect only consistent growth from Nvidia in the years to come.