- After reporting much better than expected results for its last quarter, NVIDIA is not slowing down.
- NVIDIA has continued to build new markets, signing new collaborations with Microsoft and IBM.
- Although NVDA stock is already up 182% year-to-date, it still has room to climb.
After reporting much better than expected results for its third quarter fiscal 2017 ended October 30, NVIDIA (NASDAQ:NVDA) has continued to build new markets signing new collaborations with the tech giants Microsoft (NASDAQ:MSFT) and International Business Machines (NYSE:IBM). In my view, these new developments will enable NVIDIA to maintain its impressive growth and to drive its shares even higher.
On November 14, NVIDIA announced a collaboration with Microsoft to accelerate artificial intelligence (AI) in the enterprise. According to the company, by using NVIDIA's Tesla graphics processing units (GPUs) in MSFT's Azure or on-premises, organizations will have an artificial intelligence platform that extends from their data center to Microsoft's cloud. Jen-Hsun Huang, founder and CEO of NVIDIA, explained:
"Every industry has awoken to the potential of AI. We've worked with Microsoft to create a lightning-fast AI platform that is available from on-premises with our DGX-1™ supercomputer to the Microsoft Azure cloud. With Microsoft's global reach, every company around the world can now tap the power of AI to transform their business."
Also on November 14, NVIDIA announced a collaboration with IBM on technologies to advance artificial intelligence and deep learning. In the announcement the company explained:
"Deep learning and other artificial intelligence capabilities are being used across a wide range of industry sectors; in banking to advance fraud detection through facial recognition; in automotive for self-driving automobiles and in retail for fully automated call centers with computers that can better understand speech and answer questions."
Deep learning and artificial intelligence are very fast growing areas. According to the research company Tractica, the deep learning software market is expected to surpass $10 billion by 2024. Also, according to research by MarketsandMarkets, the artificial intelligence market is estimated to grow from $419.7 million in 2014 to $5.05 billion by 2020, at a compound annual growth rate (CAGR) of 53.7%. As such, in my view, the use of NVIDIA's GPUs by leading companies like Microsoft and IBM in their AI and deep learning framework will open new large markets for NVIDIA.
Latest Quarter Results
On November 10, Nvidia reported very strong third-quarter fiscal 2017 financial results, which beat EPS expectations by a big margin of $0.26 (45.6%). Revenue for the third quarter rose 54% year over year to $2.0 billion, also topping analysts' estimates of $1.68 billion. NVIDIA significantly beat earnings estimates in its last five quarters, as shown in the table below.
Third Quarter Highlights
- Record revenue of $2.00 billion, up 54 percent from a year ago.
- Record GAAP EPS of $0.83, up 89 percent from a year ago, and non-GAAP EPS of $0.94, up 104 percent from a year ago.
- Record GAAP gross margin at 59.0 percent and non-GAAP gross margin at 59.2 percent.
- Quarterly cash dividend raised 22 percent to $0.14 per share. Company to return $1.25 billion to shareholders in fiscal 2018.
In the report, CEO Jen-Hsun Huang said:
"We had a breakout quarter - record revenue, record margins and record earnings were driven by strength across all product lines. Our new Pascal GPUs are fully ramped and enjoying great success in gaming, VR, self-driving cars and datacenter AI computing. We have invested years of work and billions of dollars to advance deep learning. Our GPU deep learning platform runs every AI framework, and is available in cloud services from Amazon, IBM, Microsoft and Alibaba, and in servers from every OEM. GPU deep learning has sparked a wave of innovations that will usher in the next era of computing."
NVIDIA Stock Performance
Year-to-date, NVDA stock is already up as much as 182.1%, while the S&P 500 index has increased 7.5%, and the Nasdaq Composite Index has risen 7.2%. Moreover, since the beginning of 2012, NVDA stock has gained an astounding 571%. In this period, the S&P 500 Index has increased 74.8%, and the Nasdaq Composite Index has gained 106.1%. According to TipRanks, the average target price of the top analysts is at $85.27, representing a downside of 8.3% from its November 21 close price of $92.98. However, two five stars analysts Brian Alger from Roth Capital and Rajvindra Gill from Needham gave it a target price of $95eight days ago and $100 respectively, indicating an upside of 2.2% and 7.6%. As I see it, shares could go even higher.
According to its valuation metrics, the NVDA stock is not cheap. The trailing P/E is high at 47.51, and the forward P/E is also pretty high at 36.35. Furthermore, NVIDIA's other valuation multiples are also relatively high; the price to sales ratio is 8.10, the price to book value is 9.40, the price to cash flow ratio is 39.84, the Enterprise Value/EBITDA ratio is 26.20, and the PEG ratio is 1.57. However, the average annual estimated EPS growth for the next five years is very high at 28.6%. Therefore, considering its strong growth prospects, in my opinion, NVDA stock is still attractive.
What's more, NVIDIA's Margins and Return on Capital parameters have been much better than its industry median, its sector median, and the S&P 500 median as shown in the tables below.
After reporting much better than expected results for its last quarter, NVIDIA is not slowing down, and it has continued to build new markets signing new collaborations with Microsoft and IBM. Year-to-date, NVDA's stock is already up 182%. However, in my view, these new collaborations, which are in the fast-growing areas of deep learning and artificial intelligence, will enable NVIDIA to maintain its impressive growth and to drive its shares even higher. Evaluating tech stocks? Check out Amigobulls' top tech stock picks, which have beaten the NASDAQ by over 110%.