Its name is known to all video gamers worldwide. And it’s not hard to understand why. NVIDIA (NASDAQ:NVDA) is the maker of those incredible GPUs (graphics processor units), also known as video cards, that gamers plug into their motherboards to get that ultra-fast, super-clear and super-sharp graphics, raising their game playing to a different level of enjoyability.
It has now been two decades since the first NVIDIA video card came out, and these GPUs continue to be an extremely reliable cash cow, generating much of their revenue, and steadily pushing the company’s market cap — currently at nearly $89 billion — higher and higher. But NVIDIA has another ace that cannot be ignored, and that’s their venture into AI or artificial intelligence.
Just a few days ago, Bloomberg Technology reported that Japan’s Softbank Group has already accumulated a $4 billion stake in NVIDIA, which now makes it the company’s fourth largest shareholder. Obviously, NVIDIA owes this large investment to its new technologies like AI and driverless cars, as its GPU deep learning platform is now becoming the ‘instrument of choice for researchers, internet giants and startups’. Let’s not also forget here the name dominates the graphics processor market, and it continues to beat earnings each quarter.
A few days prior to Bberg’s Softbank news, NVIDIA shares hit another record high, their 69th within a 12-month period. In fact, ticker is up more than 203% on a year-over-year (y/y) basis, printing the biggest gain in the S&P 500. But despite the stock’s upside and the fact that the company’s revenue spiked almost 50% in 1Q18 with GAAP EPS coming in 126% higher y/y, several analysts think that the company’s stock price run is over.
Among those skeptics is analyst Ruben Roy of MKM Partners. As pointed out by CNBC, Roy has been ‘calling the stock overvalued since the stock was trading at around $110, some $28 ago.’ And it’s mainly because NVDA has been trading at about 45x its t-12 earnings estimates. He believes that NVIDIA’s earnings growth is on the way down.
Roy’s belief is aligned with the results of the latest Goldman Sachs study which says that NVIDIA is one of the 18 stocks that are ‘doomed’ due to a high value of short interest. The list also includes big cap names such as AT&T, Intel, IBM and Walmart.
On the other side of the coin, there are also those who believe the complete opposite. And one of those is Canaccord Genuity analyst Matthew Ramsay who recently said that he is raising his target price on the name from $125 to $155. Then there’s Mizuho analyst Vijay Rakesh who also raised his NVDA target from $130 to $145. And then there’s the matter of NVIDIA being one of millennial investors’ most loved stocks, and the fact that these types of investors don’t particularly care that much about valuations.
Regardless of what believers and disbelievers say, it’s not hard to see that demand for NVIDIA’s GPU chips don’t seem to be waning. In fact, with AI research now in full swing, demand seems to be going even higher. In fact, NVIDIA CEO Jen-Hsun Huang said during his company’s fiscal Q417 earnings call a few months ago that the “[N]ext area of growth will occur as enterprise in such fields as healthcare, retail, transportation, and finance embrace deep learning on GPUs.”
Still, we have to remember that we’re talking about stocks here. As we all know, all it takes is just one major event to instantly make or break a company. And NVIDIA isn’t immune to this. Which simply means its future can go either way. That said, however, remember that fundamentals must always be part of any analysis on a particular stock and the subsequent decision on whether to stick with your long/short position or dumb the name. In NVIDIA’s case, you have to remember that besides the fact that the company’s current profit margin remains over 26% with a t-12 revenue of more than $7.5 billion, NVIDIA is not only still growing its core gaming business but is also expanding far beyond it. And that simply means more streams of revenue, more growth opportunities and eventually a higher stock price.
At last check, NVDA was trading up 3.7 points/mid $145 level. The stock has a 52 week high of $146 a share and a 52 week low of $44.57 a share.