Sometimes a company’s true value takes a little while to become apparent. This has largely been the case for California-based tech giant Nvidia (NASDAQ: NVDA), which started out back in 1993 as a small graphics design firm for video games. In the years since, the company has extended its reach far beyond gaming to become one of the world’s leading chipmakers, as well as a driving force in the growing fields of AI, robotics, and machine learning.
The stock has also had a particularly impressive run in recent months, driven partly by solid Q4 results that saw better-than-expected data center revenue growth as well as double-digit sales growth from its gaming segment. Since the past few days have seen some market wobbles related to the latest coronavirus scare, now is a great time to investigate whether Nvidia is well-positioned to thrive under more volatile conditions.
The Bull Case For Nvidia
When deciding whether or not to buy a stock, investors should look for companies with both a history of strong growth as well as the prospect of greater returns in the future. Nvidia sits comfortably in both camps, navigating the fine line between past triumphs and future potential.
By any standards, the company has achieved phenomenal growth since making its stock market debut back in 1999, with the stock up roughly 16,000% since then. And Nvidia shows few signs of slowing down. Total revenue has climbed from $9.7 billion in 2018 to almost $11 billion in 2020, and is expected to reach $13 billion next year.
Meanwhile, big changes are on the cards, including the company’s soon to be closed $6.9 billion acquisition of Mellanox Technologies, a supplier of networking products that are expected to help further streamline Nvidia’s operations.
There’s no reason to suspect that Nvidia’s best days are behind it either. Here are a few reasons why:
- The company’s founder and CEO, Jensen Huang, is a visionary on the order of Gates and Musk who has presided over decades of growth and innovation. Furthermore, Huang is literally invested in the future of the company, with a roughly 3.9% stake.
- Plenty of opportunities for expansion lie ahead, as more and more products across the tech sector find a use for Nvidia’s signature graphics processing unit.
- Thanks to its high margins, Nvidia is cash-rich. More cash means more freedom to grow and take calculated risks. The company boasts an extraordinary $8.9 billion in net cash.
The Bear Case For Nvidia
While Nvidia has proven itself to be a very resilient company, current market conditions still pose a threat to its bottom line. With its gaming business accounting for roughly half of revenue, Nvidia may be particularly vulnerable to the global threat posed by COVID-19 and related complications. If we are indeed on the precipice of an economic downturn, discretionary segments such as gaming could be disproportionately hit.
The company is very highly valued, with a market cap currently hovering around $150 billion. While Nvidia is a profitable and cash-rich company, investors may be skeptical of a valuation that exceeds 2019’s earnings seventy-fold.
So, Should I Buy Nvidia Stock?
Nvidia has a way of convincing even its skeptics that it has something special to offer. We saw this last week when Bernstein analyst Stacy Rasgon and notable Nvidia bear completely revised his previously gloomy predictions for the company.
Founder-led, wonderfully ambitious, and consistently ahead of the market, Nvidia is definitely an impressive stock. The company oversees several segments that may end up taking off in a way that could be life-changing for current shareholders — notably its self-driving vehicle and AI businesses. Even without these moonshot projects, the stock would remain a very reliable long-term investment.
What does Nvidia do?
Nvidia is a technology company best known for manufacturing graphics processing chips. It has also been heavily involved in exciting high-tech spaces such as AI, robotics, and self-driving cars.
Is Nvidia a Chinese company?
No, Nvidia is an American company. It was incorporated in the state of Delaware and is currently based in Santa Clara, California.
Does Nvidia pay a dividend?
Yes, Nvidia pays an annual dividend of $0.64 per share.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Nvidia. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Jamie is a contributing writer for MyWallSt.