Nvidia (NVDA) Stock Analysis and Forecast

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Updated: 28th Apr 2021
Written by Sean Graytok
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April 28, 2021
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It’s been a historic year for Nvidia and its stock — but is NVDA still a buy after running this hot?

Let’s find out in this Nvidia Stock Forecast & Analysis.

What is Nvidia?

Nvidia is a technology company that manufactures graphics processing units (GPUs) and system on a chip unit (SoCs) for the professional markets.

GPUs and SoCs perform rapid mathematical calculations that make high-performance computing possible.

Nvidia’s GPUs and chips enable various technologies beyond gaming, such as artificial intelligence, data center capabilities, robotics, and cryptocurrency mining.

Nvidia stock is often considered a “pick and shovel” play – an investment strategy of buying stock in the tools or services an industry uses to produce a product.

Do You Need Stock Picking Guidance? Check Out the Motley Fool For Expert Insights.

Nvidia Stock Investment Potential

#1. Artificial Intelligence

Artificial intelligence has been around since the 1950s, but the technology at the time was unable to unlock AI’s full potential. Today, that’s a different story – thanks to Nvidia.

We are surrounded by artificial intelligence, yet the field is still largely misunderstood. People hear “AI” and immediately think of robots taking over the world.

The robotics field certainly uses AI, but the technology is also used in “less exciting” areas like data centers, gaming, natural language processing, and the cloud.

Nvidia is fabulously positioned for the age of AI because it creates the products that make these applications possible.

Nvidia GPUs are required for machine learning and deep learning algorithms. These GPUs can do computations that are too complex for CPUs.

Nvidia SoCs are used for mobile supercomputing, like mobile gaming and autonomous driving.

Nvidia’s “Professional Visualization” technology powers cameras and radars in autonomous vehicles. Automakers also use these technologies for engineering simulation and analysis.

Nvidia products are incredibly difficult and costly to make, so most companies are happy to buy them from Nvidia instead of making them independently.

#2. Cloud & Data Centers

Cloud computing would not exist without Nvidia’s GPUs – the company’s computing platforms and products give modern data centers the power to accelerate deep learning, machine learning, and high-performance computing (HPC) workloads.

Companies that shift to the cloud save money because they only pay for the computing power they need, compared to having on-premises servers that continuously run.

You turn the lights on when you enter a room and turn them off when you leave — that’s cloud computing. On-premise servers keep the lights on all day, even when nobody is in the room.

The growth of cloud computing has attracted the attention of the world’s best companies, like Amazon, Microsoft, and Google.

Amazon Web Services and Microsoft Azure are the new foundations of their respective companies.

AWS and Azure would be some of the most valuable businesses on Earth if they were standalone operations.

But none of this is possible without Nvidia — picks and shovels.

See: Best Cloud Computing Stocks

#3. Gaming

Gaming was Nvidia’s initial core offering and still generates the majority of its revenue by selling the world’s most advanced graphics cards, gaming solutions, and gaming technology.

However, investors are becoming increasingly excited about the company’s cloud gaming service “GeForce Now”, which runs on a subscription model of $9.99 per month.

Cloud gaming streams the latest games from powerful GPUs in remote data centers to nearly any device.

This means that Nvidia provides the processing power instead of the device in front of you – just like cloud computing.

Nvidia has an advantage over the other cloud gaming services like Microsoft’s Project xCloud, Google Stadia, and Amazon Luna: vertical integration.

The FAAMG stocks have to outsource their GPU production and high-performance computing to Nvidia, while Nvidia can keep all of that in-house.

#4. Crypto Mining

In addition to cloud computing, cloud gaming, robotics, and autonomous vehicles, Nvidia is the backbone of crypto.

Its cryptocurrency mining processor and GPU architecture allow professional miners to mine more efficiently and recoup rewards faster.

Miners use cryptography to validate transactions on the ethereum and bitcoin blockchains, which requires an extraordinary amount of computing power.

The miners that are first to validate transactions receive mining rewards, so the fastest and most accurate miners make the most money.

This incentivizes miners to have the best equipment that money can buy. Enter, Nvidia.

As the currencies themselves become more mainstream, expect the infrastructure around them to receive more attention and funding.

#5. U.S. Infrastructure Bill

The Biden administration released an initial draft for an infrastructure spending bill that would allocate $180 billion to support new research and development into technology like AI.

The plan would also send $100 billion to modern workforce education and training to teach workers how to use these new technologies that are enabled by companies like Nvidia.

Nvidia is at the epicenter of this government initiative; millions of developers use its products and services across countless different industries.

Nvidia plays a complicated role in the AI race between the U.S. and China. Nonetheless, more domestic funding in AI R&D will benefit Nvidia’s bottom line.

See: Tesla Stock Analysis

Nvidia Stock Moat

A company’s “moat” typically refers to its ability to keep challengers at bay and defend its market share and profitability.

In our estimation, Nvidia’s moat is straightforward: the company makes things that are really difficult to make.

There are massive barriers to entry in the GPU manufacturing market due to costs and complexity. Few companies have the means or desire to take on such a task themselves.

Big Tech doesn’t defer GPU and SoC production for charity – it’s currently not worth their time and is easier to outsource.

This can change over time as companies progress, but most CEOs will be reluctant to make a risky and uncomfortable shift of this magnitude.

See: Palantir Stock Analysis

Nvidia Stock Analysis

Nvidia announced its financial results for the fourth quarter and fiscal 2021 on February 24, 2021. Let’s jump into the report:

Overall:

  • Record quarterly and full-year revenue for the company, Gaming, and Data Center divisions
  • Quarterly revenue of $5.00 billion, up 61% YoY
  • Full-year revenue of $16.68 billion, up 53% YoY
  • Non-GAAP EPS for the quarter were $3.10, up 64% YoY

Data Center:

  • Q4 revenue was a record $1.90 billion, up 97% YoY
  • Full-year revenue was a record $6.70 billion, up 124% YoY
  • Nvidia DGX A100 systems provided support for Google Cloud’s hybrid cloud offering Anthos
  • Collaborated with Amazon Web Services to bring the NVIDIA NGC software hub to AWS Marketplace

Gaming:

  • Q4 revenue was a record $2.50 billion, up 67% YoY
  • Full-year revenue was a record $7.76 billion, up 41% YoY
  • Announced the company’s biggest-ever laptop launch, with 70+ new laptops in the pipeline
  • Increased NVIDIA RTX (graphics card) adoption, now available in 36 new titles, including Minecraft, Fortnite, and Cyberpunk 2077
  • Announced GeForce NOW has come to iOS Safari, giving 6+ million GeForce NOW members access to the service through Safari on iPhone or iPad

Professional Visualization:

  • Q4 revenue was $307 million, up 30% from the previous quarter but down 7% YoY
  • Full-year revenue was $1.05 billion, down 13% YoY

Automotive:

  • Q4 revenue was $145 million, up 16% from the previous quarter and down 11% YoY
  • Full-year revenue was $536 million, down 23%
  • Announced that NVIDIA DRIVE autonomous driving technology is powering next-gen EV carmakers SAIC and Nio; robotaxi-maker Zoox; and cabless truck-maker Einride
  • Announced NVIDIA is powering the new Mercedes-Benz AI cockpit, debuting in the all-electric Mercedes-Benz EQS in 2021

Nvidia stock went from a 3% gain to a 2% loss in after-hours trading following the call.

The decline may have been due to CEO Jensen Huang’s comments regarding the company’s crypto business. He said that he does not expect this portion of Nvidia to “grow extremely large.”

From an optics perspective, we believe he is distancing the company from the volatility that is commonly associated with the crypto markets.

See: Coinbase Stock Analysis

Nvidia Stock Competition

The GPU market is more volatile than the average sector due to geopolitical tensions between the U.S. and China, which adds an unpredictable layer to the already complicated environment.

Here are Nvidia stock’s top chip competitors:

  • Advanced Micro Devices (AMD)
  • Broadcom (AVGO)
  • Intel (INTC)
  • Qualcomm (QCOM)

Nvidia also competes with cloud gaming platforms:

  • Stadia (GOOG)
  • Project xCloud (MSFT)
  • Luna (AMZN)
  • PlayStation Now (SNE)

Nvidia’s competition is subject to change if more companies begin making their own chips and processing units.

See: Netflix Stocks Analysis

Nvidia Stock Risks

#1. Companies Make Their Own Chips

While only a handful of companies would have the resources to do so, it’s possible that Big Tech starts making their own chips.

In fact, Apple recently ended its 15-year relationship with Intel and began making its own chips for laptops and desktops.

Apple CEO Tim Cook has said multiple times that the company has a long-term strategy of owning and controlling the primary technologies behind the products it makes.

What’s stopping Amazon from making its own chips for AWS? While manufacturing GPUs is very complex and costly, it wouldn’t be the first time the “retail” giant branched out into new markets.

#2. Geopolitical Complications

The United States disproportionately relies on China for chip manufacturing, specifically Taiwan Semiconductor Manufacturing Company, better known as TSMC.

Tensions between these two superpowers can impact the entire supply chain, making it more important than ever to pay attention to rising tensions.

For example, Nvidia GPU production could be affected if the U.S. and China Trade War heats up again.

While Nvidia won’t be the only company impacted by this, it would certainly feel the sanctions to a larger degree than the average company.

See: Square Stock Analysis

Nvidia Stock Allocation in Your Portfolio

The optimal amount of Nvidia stock will vary from person to person — factors such as available capital, time horizon, and investing goals should all be considered.

However, the following questions might help you find the right allocation:

  • Is Nvidia positioned to benefit from the rise of digitization?
  • Is Nvidia’s moat wide enough to fend off competition?
  • To what degree would increasing tensions between the U.S. and China affect Nvidia’s business?
  • Will the FAAMG stocks take over the cloud gaming market?
  • Can Nvidia be a market leader in mobile gaming?
  • Do you already have enough exposure to NVDA via the Invesco QQQ ETF?
  • Are there better pure-play AI investments elsewhere?
  • Will unfavorable cryptocurrency regulation affect Nvidia’s mining-related business?
  • How can the market accurately price in AI applications that are yet to exist? And will Nvidia’s products and services be necessary for those applications?

We believe thought experiments of this kind are useful for determining portfolio allocations.

See: PayPal Stock Analysis

Bonus: NVDA Coverage from The Motley Fool

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The Motley Fool covers the latest on all-things Nvidia and will help you navigate the volatile markets of chips and AI.

Join the Motley Fool today and see which stocks they’re recommending for 2021.

See: Motley Fool Review

Nvidia Stock Analysis FAQs

Is Nvidia stock overvalued?

Nvidia stock is “overvalued” by most traditional metrics. Here is how Nvidia stock’s 2021 consensus EV/Revenue compares to its competitors:

  • Nvidia 16.9x
  • AMD 7.5x
  • Qualcomm 5.2x
  • Intel 3.5x

Is Nvidia a good dividend stock?

Nvidia pays an annual dividend of $0.64 per share – with a dividend yield of 0.10%. Nvidia pays out 13.94% of its earnings out as a dividend.

Should I buy Nvidia stock?

Nvidia stock will benefit from the next age of artificial intelligence applications, which is why many analysts consider it a “buy”. Most companies that develop AI depend on Nvidia for its GPUs. 

Will Nvidia stock go up?

It’s impossible to know in the short term, but we believe that Nvidia stock will go up in the long term due to its role in AI applications, data center, gaming, and crypto mining. 

See: Airbnb Stock Analysis

Bottom Line: Nvidia Stock Analysis & Forecast

Nvidia is providing the tools to unlock AI’s true potential. While the stock has been on quite the run, it may just be getting started.

Nvidia’s key role in the future of AI makes it an attractive stock for long-term investors.

More Stock and ETF Analysis:

Sean Graytok does not directly own shares of Nvidia Corporation (NVDA).

Sean Graytok
Sean Graytok
Sean is a lifelong student of the financial, media, and marketing industries. He is a Generation Z investing expert and is on a mission to empower investors to make the most of their money.