These 10 Words From NVIDIA’s CEO Could Mean More Upside for This Growth Stock

Investors had excessive expectations heading into NVIDIA‘s (NASDAQ:NVDA) fiscal first-quarter earnings report in late May, and the graphics chip maker did not disappoint. 

Revenue and adjusted earnings per share crushed expectations, with file outcomes throughout the gaming, knowledge middle, {and professional} visualization segments. What’s extra, administration guided for income of roughly $6.3 billion for the fiscal second quarter, increased than the $5.5 billion analysts had anticipated. 

In a press release, CEO Jensen Huang stated: “Across industries, the adoption of NVIDIA computing platforms is accelerating.” These 10 phrases from the graphics wizard himself spell additional upside in 2021 for this progress tech inventory. Let’s have a look at what administration needed to say through the fiscal first-quarter earnings name, and why the inventory is perhaps undervalued within the close to time period.

NVIDIA’s A100 GPU for high-performance computing. Image supply: NVIDIA.

Expect extra progress from the information middle section 

Data middle income reached a brand new file of $2 billion within the quarter, growing 79% yr over yr. Huang talked about on the earnings name that the corporate is seeing strengthening demand for cloud companies from teams starting from science researchers to these needing computing energy for distant work. 

NVIDIA’s expertise is in all places. In February, Alphabet revealed that Google Cloud is utilizing NVIDIA’s A100 chips to energy the bogus intelligence (AI) workloads behind Square‘s Cash app. “Every trade is turning into a expertise trade and accelerating investments in AI infrastructure each by the cloud and on-premise,” NVIDIA CFO Colette Kress stated through the earnings name. 

NVIDIA expects additional progress from Q1 to Q2 within the knowledge middle section. But NVIDIA may expertise even stronger demand within the second half of the yr primarily based on its sturdy product lineup. “We do see, as issues proceed to open up, a time to speed up within the second half of the yr for knowledge middle,” Kress stated. 

If demand retains up, NVIDIA would even be ready to see additional enchancment in adjusted gross margin and income. Sales of higher-margin chips within the knowledge middle enterprise boosted non-GAAP gross margin by 40 foundation factors within the quarter, which contributed to strong progress in adjusted earnings per share of 103% over the year-ago quarter. 

Investors predict a slowdown in gaming

The one near-term danger to NVIDIA’s steerage is what occurs with cryptocurrency demand. A possible drop in cryptocurrency costs may have an effect on demand for its GeForce gaming chips, which are sometimes used to mine cryptocurrencies.

It’s regarding that crypto mining is boosting the gaming section; gaming income jumped 106% yr over yr to $2.76 billion throughout what is usually a gradual quarter for the gaming trade. Management reported $155 million in income for its cryptocurrency mining processors (CMPs), however the firm is not sure how a lot of the general gaming progress got here from miners who is perhaps shopping for devoted gaming GPUs. The uncertainty round crypto demand, and whether or not a repeat of 2018 may convey down gaming income, considerably clouds the funding case for the inventory proper now. 

Still, NVIDIA’s inventory worth trades at a ahead price-to-earnings ratio of 45.7, which is not a lot relative to how briskly the enterprise has grown so far. The ahead price-to-earnings-growth (PEG) ratio is at the moment 0.47. Typically, a PEG ratio of lower than one alerts a discount, so traders might already be discounting the potential for a slowdown in progress.

The consensus analyst estimate has NVIDIA posting income progress of 34.5% this yr, with adjusted earnings per share climbing 36% to $13.61. However, these targets is perhaps conservative, given NVIDIA’s latest outcomes that crushed expectations and the ahead steerage that was additionally properly above analysts’ estimates. 

All stated, there’s super enterprise momentum at NVIDIA that analysts appear to be underestimating, which may push the share worth to new highs in 2021.

Looking forward to subsequent yr, NVIDIA says the acquisition of Arm Holdings from Softbank Group remains to be on tempo to shut in early 2022. If the $40 billion deal will get permitted by regulators, that might be one other mid-term catalyst for additional share worth features.

This article represents the opinion of the author, who might disagree with the “official” advice place of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even certainly one of our personal — helps us all assume critically about investing and make selections that assist us turn out to be smarter, happier, and richer.

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About the Author: Daniel