NVIDIA Corporation (NVDA) has seen its stock price surge 245.9% year to date, significantly outperforming the S&P 500’s 15.6% returns over the same period.
The silicon valley-based tech giant is best known as the leading manufacturer of graphics processing units (GPUs) used for gaming, professional visualization, data centers and cryptocurrency mining.
However, NVIDIA has also established itself as a frontrunner in artificial intelligence (AI) and deep learning technologies.
Why Has NVDA Performed So Well This Year?
NVIDIA’s meteoric stock gains can be attributed to several factors:
1. Surging Demand for GPUs in AI and Data Centers
While NVIDIA built its reputation on high-performance GPUs for the gaming market, its chips are now increasingly powering AI applications and cloud computing services.
The company’s GPU sales to hyperscale data centers have skyrocketed in recent years. NVIDIA’s data center revenue surged 58% year-over-year to $3.75 billion in its latest quarter. This growth was driven by strong demand from cloud service providers deploying AI infrastructure.
NVIDIA GPUs are widely used to train and infer large AI models like ChatGPT. The chatbot craze has led to surging demand for advanced AI processing power.
2. Growth in Cryptocurrency Mining
Despite recent volatility, cryptocurrency mining remains a significant driver of GPU sales. Ethereum’s transition to proof-of-stake reduced this demand, but mining other coins like Ethereum Classic and Ravencoin continues to require high-performance graphics chips.
NVIDIA CMP chips, designed specifically for mining, generated $266 million in sales over the last 3 quarters of FY2021. While lower than the crypto boom years, this still represents steady revenue.
3. Gaining Traction in Automotive Industry
NVIDIA is expanding beyond its PC gaming roots into the fast-growing autonomous driving space. It’s delivering AI cockpit solutions to major automotive brands through partnerships with Mercedes-Benz, Hyundai Motor Group, Volvo and others.
Its DRIVE Hyperion 8 AI-powered system has been selected by multiple car manufacturers for upcoming models. This presents a significant growth opportunity as demand for smart vehicles increases.
4. Strong Financial Performance and Outlook
NVIDIA has posted outstanding financial results this year, beating analyst estimates. Q3 FY2023 revenue grew 48% year-over-year to $5.93 billion. Data center revenue grew 31% while gaming jumped 25% annually.
Looking ahead, Q4 guidance midpoint sits at $6.00 billion in sales, representing 21% anticipated growth. Consensus estimates see revenue rising over 12% annually through 2025, an impressive growth rate for a mega-cap tech firm.
Robust sales and income growth have propelled NVDA’s soaring valuation. The stock trades at a lofty forward P/E of 55 but this premium seems justified by NVIDIA’s market leadership and expansion opportunities.
How Will AI and Automotive Partnerships Fuel Future Growth?
While NVIDIA has already achieved tremendous success, its partnerships and traction in AI and the automotive market indicate plenty of upside remains.
1. AI Momentum Building
NVIDIA GPUs power many of the world’s most advanced AI systems. Its chips enabled the creation of models like GPT-3 and DALL-E 2 that showcase the potential of large language models and generative AI.
With OpenAI’s ChatGPT captivating the public imagination, awareness of AI capabilities is soaring. NVIDIA is perfectly positioned to capitalize on this trend and sell more GPUs to train the next generation of models.
Initiatives like the NVIDIA AI Hub – which provides resources to startups working on groundbreaking AI – will further embed the company’s technologies. The AI revolution is still in its early innings and will drive demand for its specialized computing platforms.
2. Self-Driving Tech Growth Potential
NVIDIA’s partnerships with automakers and autonomous vehicle suppliers have increased dramatically in the last few years. It’s now working with over 320 companies in the space compared to 270 a year ago.
Its DRIVE platform has racked up design wins and is being integrated into upcoming models like the Mercedes-Benz CEO electric luxury sedan. Consumer adoption of driver assistance and self-driving tech is forecast to accelerate rapidly over the next decade.
IHS Markit projects the automotive AI market will bloom from $1.1 billion in 2019 to $26 billion by 2025. NVIDIA’s first-mover advantage with advanced cockpit infotainment and autonomous systems perfectly position it to ride this wave.
The meteoric rise of Tesla also shows the massive value creation potential in next-gen smart vehicles. If NVIDIA can cement itself as the “brains” powering this evolution, it could enjoy a tremendous growth runway.
More Read
Final Analysis: Should You Buy NVDA Stock?
NVIDIA stock has seen an incredible run-up this year, leaving some investors wondering whether it’s gotten overheated and due for a pullback.
However, Wall Street analysts remain overwhelmingly bullish on the shares:
- 30 buy ratings, 9 hold ratings, 0 sell ratings
- Average price target of $251 implies 14% upside
Key points supporting the bull thesis:
- Clear market-leader in GPUs for gaming, data centers, AI and crypto mining
- Early mover advantage in key secular growth markets like AI and autonomous driving
- High-margin platform model that leads to earnings growth outpacing revenue
- Partnerships with industry leaders validating and entrenching NVIDIA technology
- Valuation premium justified by strong competitive position and consistent execution
NVIDIA is firing on all cylinders and end-market tailwinds look set to continue propelling earnings higher. The stock may be due for some consolidation after this year’s parabolic gains but long-term growth prospects remain attractive.
For investors comfortable with its above-average valuation, buying NVDA stock appears a savvy move to gain exposure to AI, data center, and next-gen automotive technology trends.
Sources:
- https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-third-quarter-fiscal-2024
- https://www.nasdaq.com/articles/nvidia-nvda-q3-datacenter-sales-soar-on-cloud-genai-boom
- https://www.cnbc.com/2021/11/17/nvidia-crypto-mining-chip-sales-dropped-60percent-sequentially-in-q3.html
- https://developer.nvidia.com/drive/hyperion