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NVIDIA on a Dip? Is it Time To Buy In?

February 18, 2019 / By /
Stock (Symbol)

NVIDIA (NVDA)
Stock Price

$227
Sector
Retail & Travel
Data is as of
Apr 10, 2018
Expected to Report
May 7
Company Description
Nvidia Corporation focuses on personal computer (PC) graphics, graphics processing unit (GPU) and also on artificial intelligence (AI). The Company’s operates through two segments: GPU and Tegra Processor. The Company’s GPU product brands are aimed at specialized markets, including GeForce for gamers; Quadro for designers; Tesla and DGX for AI data scientists and big data researchers; and GRID for cloud-based visual computing users. The Company’s Tegra brand integrates an entire computer onto a single chip, and incorporates GPUs and multi-core central processing units (CPUs) to drive supercomputing for mobile gaming and entertainment devices, as well as autonomous robots, drones and cars. Source: Thomson Financial
Sharek’s Take
David SharekNVIDIA (NVDA) has been on a tear the past two years, and I’ve missed out on the run. The stock had its big breakout at $25 in May 2016 and topped $250 earlier this year before settling down to around the $225 area. NVIDIA is taking over the world, as it’s the brains behind the new generation of computers. NVIDIA’s chipsets and processors are perhaps two years ahead of the competition. And with technology moving so fast, their lead is breathtaking. Here’s NVDA’s five divisions.

  1. Gaming — NVIDIA continues to be the leader in video gaming cards with its GForce line. Its advanced chips and gaming devices turn science fiction into reality. You will be playing or watching like you’re actually there. In the last five years video game technology has grown ten-fold, and is now a $5 billion industry. Gaming accounts for half company sales.
  2. Datacenter — This is the division that could send the stock soaring. The brains behind more powerful and efficient servers. Sales are around 20% of overall company sales.
  3. Professional Visualization — This is character animation, pose estimation, face recognition, virtual security guards. NVIDIA estimates there will be 1 billion cameras in cities worldwide by 2020 to help find lost people, improve traffic and enhance law enforcement. This division is 10% of NVDA sales.
  4. Auto — the brains of the Autonomous car, advanced computers which visualize the environment around you and predict where the cars could be headed to prevent accidents. Sales in this division are only around 5% of total sales
  5. OEM & IP — royalty payments from Intel and low-end graphics chips. This is a low-margin business, and management isn’t focusing here.

NVIDIA is really the brains of the new AI economy with virtual reality and electronic cars. These high production computer chips are needed to mine crypto-currencies like Bitcoin, which is a worldwide phenomenon. In countries outside the U.S. people are buying state-of-the-art computers to search for or mine for coins. With the vast growth opportunity in NVIDIA’s expertise, the sky is the limit in terms of profit growth. Or the company could become just another chip stock and Fall from its heights. Right now the stock sells for 36x earnings, which is a good price when you look back to prior qtrs. NVDA will be added to the Growth Portfolio and Aggressive Growth Portfolio.
One Year Chart
What makes this stock a top growth stock in the market today is that the company has been whipping profit estimates the past few qtrs. Last qtr, profits were expected to climb 16% and instead jumped 59%. Sales rose 21%. Afterwards, future estimates increased too. This chart is flooded with green, with the only negatives being (1) the Est. LTG is just 10%, down from 15% last qtr) and (2) up-and-down years in the past.
Fair Value
2018 estimates surged this qtr from $4.70 to $6.28. 2019 estimates jumped from $5.84 to $7.26. Thus my Fair Value of 45x earnings gives the stock substantial upside. According to this table anyway. Do keep in mind the stock’s up (around) ten fold in just two years. That makes NVDA riskier.
Bottom Line
NVIDIA has been a superstar the past two years, and along the way I have missed out as I fel the stock could tumble after a parabolic run. I’ve tried to wait for a correction but the stock only offers me a small pullback. And at this point I’ll take it. Estimates are increasing which makes the stock timely, and with solid upside to its Fair Value NVDA will be added to both the Growth Portfolio and Aggressive Grwoth Portfolio, where it will rank 16th in the Power Rankings.
Power Rankings
Growth Stock Portfolio

15 of 39

Aggressive Growth Portfolio

15 of 18

Conservative Stock Portfolio

N/A

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