NVIDA: AI, Robotics and Self-Driving Cars

07/28/2020 5:00 am EST


Bruce Kaser

Chief Analyst, Cabot Undervalued Stocks Advisor

NVIDIA (NVDA) is the pioneer and leading designer of graphics processing unit (GPU) chips, which initially were built into computers to improve video gaming quality, asserts Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.

However, they were discovered to be nearly ideal for other uses that required immense and accelerated processing power, including data centers and artificial intelligence applications such as professional visualization, robotics and self-driving cars.

In April, NVIDIA completed the $6.9 billion acquisition of Mellanox Technologies, an innovator in high-performance interconnect technology routinely used in supercomputers and hyperscale data centers. The firm's data center business now represents about 50% of total revenues.

NVIDIA is a high-P/E, aggressive growth/momentum stock. Its shares have increased 17x since the start of 2015 and now trade essentially at their all-time high.

No one knows how large the industry will ultimately become, but “larger than it is today” seems like the correct answer for many days and years into the future. Until this open-ended growth appears to peak, it would be difficult to bet against it. The only question for momentum investors is when to stop betting on it.

The valuation of 42.6x estimated fiscal year 2022 earnings is high and on the edge of astronomical, particularly for a company its size.

Wall Street now expects EPS to grow 21% in fiscal 2022 (January year-end) compared to fiscal 2021. The company reports its earnings in September. For now, we’re staying with our "Strong Buy" recommendation.

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