- NVIDIA is on a roll, with three key segments showing double-digit growth.
- The company is confident of continuing the trend for several more quarters.
- As a result, valuations are high. Should you still buy NVDA stock now?
In a short span of twelve months NVIDIA (NSDQ:NVDA) has transformed itself from a more common growth story, to one of the biggest hyper growth stories of our time. NVIDIA’s quarterly revenue growth has moved up from under 10% before Q4 of last year to above 20% levels currently. The increase in growth numbers has put rocket fuel into NVDA stock, which has more than doubled in the last twelve months, and more than tripled in the last two years. But the important question is, should you buy NVDA stock now?
NVIDIA is now trading at nearly 6.5 times sales and 40.5 times earnings. NVIDIA projected its 20%+ growth to continue in Q3, and by the looks of it, the company expects its new-found growth momentum to continue for some more time. Naturally, expectations are high going into Q3 earnings.
High Expectations Match High Confidence Levels
NVIDIA is expecting revenue for the third quarter to hit $1.68 billion, plus or minus two percent, the midpoint of which is nearly 28% more than their third quarter 2016 revenues of $1.305 billion. The market is estimating NVIDIA to report a consensus EPS of 56 cents, with $1.69 billion in revenues. Clearly, Wall Street is expecting NVIDIA to reach closer to the top end of its guidance when the company reports third-quarter numbers on November 3rd.
Also Read: Why I Would Still Buy NVDA Stock Today
One of the major factors for the increased level of confidence in NVIDIA is the fact that the company’s new growth drivers - the Data Center segment as well as the Auto segment - are both growing at strong double-digit rates. NVIDIA still earns a major portion of its revenues from the Gaming segment, which accounted for nearly 57% of their second quarter sales, and this segment has also witnessed strong numbers, reporting 18.33% growth during the second quarter and 17.03% growth in the first quarter of the current fiscal compared to the prior period.
Far Ahead of the Competition in AI and Autonomous Technology
With their top earner growing in the near-20% range and new drivers growing in excess of 50%, NVIDIA has a lot of reasons to believe that the growth story will continue well past the current year. NVIDIA is already a dominant force in the artificial intelligence market and has run away with a huge lead, with almost all major tech companies using their products. The competition has woken up now, with Intel steadily ramping up their expertise in this segment, but NVIDIA has already become the company to beat when it comes to hyperscale computing.
The same case repeats itself in the Auto segment where NVIDIA powers infotainment and digital clusters of nearly 8 million cars and is playing a huge role in the evolution of self-driving technology.
Both AI and autonomous technologies are still in the early stages of their adoption cycle, and big tech companies are racing to get to the top of their game in both of these fields. As they compete with each other, these companies are naturally looking for the best products that are available in the market. NVIDIA has clearly positioned itself in the right place at the right time to take advantage of such growth, as there are no significant competitors to their products, at least not yet.
These segments have continued to grow as evidenced by the growth of cloud companies such as Amazon and Microsoft and companies like Tesla, GM, Ford, Google and many more around the world are working tirelessly on autonomous driving technologies. In the short term NVIDIA looks good to continue its growth path and if the competition does not get ready soon enough, they are literally going to run away with both these segments. Though the company has proven that it can think a few years down the road and keep pushing the bar higher and higher when it comes to innovation, the stock price has also gotten way out of hand.
NVIDIA is enjoying strong growth right now which, in all likelihood, should continue for some more time, but at more than six times sales, investors have a very slim margin of safety. The third quarter is looking good to serve as another confirmation of NVIDIA’s growth story. And if you want in, either buy when the price drops or add small amounts over a long period of time. Evaluating tech stocks? Check out Amigobulls' top stock picks from the technology sector, which have beaten the NASDAQ by over 112%.