Our NVIDIA Stock Prediction In 2019 (Buy or Sell?)
NVIDIA (NSDQ: NVDA) is a “story stock” that gets a lot of attention in the media. The pundits on CNBC, Fox Business, Bloomberg, and the other financial news gabfests fixate on sexy tech stocks such as NVIDIA.
Based in Santa Clara, California (the heart of Silicon Valley), NVIDIA designs graphics processing units (GPUs) for the gaming and professional markets. The firm also makes system-on-a-chip units (SoCs) for the mobile computing and automotive markets.
Given the popularity of the devices and systems that require NVIDIA’s chips, is the company a buy or a sell? I’m usually leery of stocks that are media darlings (it’s the contrarian in me), but sometimes the adulation is warranted.
Another concern is that investors this year seem to be transitioning away from momentum stocks toward value plays. Is NVIDIA an attractive value or does it trade at nosebleed valuations like many high-profile tech stocks?
Let’s give NVIDIA a fair hearing and get some definitive answers.
What, Exactly, Is NVIDIA?
With a market cap of $113.3 billion, NVIDIA has evolved into a platform company that caters to several booming technology markets, including gaming, virtual and augmented reality (VR/AR), the Internet of Things (IoT), data centers, and automobiles.
NVIDIA also is making significant forays into the leading-edge field of artificial intelligence (AI). Specifically, the firm creates systems for high-speed, parallel processing that allows scientists and researchers to operate high-performance AI applications on supercomputers.
How Has NVIDIA Stock Performed?
NVIDIA shares have outperformed over the long haul.
- Year to date, NVIDIA has gained 39.8% compared to a gain of 14.5% for the S&P 500.
- Over the past two years, NVIDIA has gained 95.7% vs. a gain of 23.2% for the S&P 500.
- Over the past five years, NVIDIA has gained a whopping 931.4%, vs. a gain of 58.1% for the S&P 500, and a gain of 160.4% for the benchmark iShares PHLX Semiconductor ETF (SOXX).
What Is NVIDIA’s Stock History?
NVIDIA has generated outsized profits but it also has a history of short-term choppiness. The company occupies a ferociously competitive sector and its share price tends to bounce up or down according to the Silicon Valley rumor mill or the emergence of new technologies.
But that’s the risk/reward equation investors must accept in the inherently volatile technology sector, especially in the innovative business segments occupied by NVIDIA.
The upshot: patient NVIDIA investors have been handsomely rewarded over the long haul.
How Has NVIDIA Performed In 2017/2018?
- In 2017, NVIDIA gained 89.6% vs. a gain of 19.4% for the S&P 500.
- In 2018, NVIDIA lost 37.1% vs. a loss of 7.5% for the S&P 500. It was a bad year for the entire tech sector, with particularly steep losses in the fourth quarter.
Who Are Some of NVIDIA’S Rivals?
NVIDIA’S toughest competitors are Advanced Micro Devices (NSDQ: AMD), Intel (NSDQ: INTC), and Qualcomm (NSDQ: QCOM). All three firms develop computer chips and related technologies for business and consumer markets; all three are strong companies in their own right.
However, while each competitor boasts distinct advantages that have lifted their respective stocks, none possess the unique attributes that have allowed NVIDIA’s stock to soar 931.4% over the past five years.
Let’s drill down into each.
Advanced Micro Devices
AMD’s core products include microprocessors, motherboard chipsets, embedded processors, central processing units (CPUs), and GPUs.
AMD is a so-called foundry, making chips for chip engineers who don’t have the benefit of factories, or “fabs” (consequently, the term fabless).
AMD has enjoyed a nice run, although its fabless clientele — notably, Apple (NSDQ: AAPL) — have suffered from broader market volatility. As of this writing, though, the tech sector is bouncing back from its dismal performance in the latter part of 2018.
Intel is the largest maker of semiconductors in the world, but the migration away from PCs toward smartphones has hurt the company.
Intel’s PC business remains its biggest operating unit, accounting for two-thirds of sales. Intel is likely to continue its dominance of the PC microprocessor market over the long haul, thanks to a strong research and development (R&D) budget.
Intel also is devoting considerable resources to developing new, ever-faster chips for smartphones. However, Intel has come late to the mobile device party.
Qualcomm is a semiconductor and telecommunications products maker. The company is divided into two divisions, Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL).
QCT designs and markets chipsets that are the cornerstones of laptops, tablets and smartphones. The QTL division holds patents for mobile telecommunications.
The company’s ownership of this intellectual property means that whenever a manufacturer sells a handset that delivers high-speed data connections, Qualcomm reaps a royalty on the sale, regardless of the device’s brand. That’s a sweet arrangement.
However, Qualcomm is a mature tech company that’s encountering headwinds in the form of sputtering smartphone demand.
Will NVIDIA Go Up In 2019 (Should You Buy)?
Despite its huge run-up in price, is NVIDIA still an attractive buy?
NVIDIA and its competitors are penetrating the markets for AI, VR/AR, cloud computing, and IoT, providing a powerful impetus for capital appreciation.
These are all good places to be. But NVIDIA has its fingers in a lot more pies.
To truly gauge if NVIDIA is a good buy now, we need to examine some of the promising technologies that are poised to drive the company’s growth in coming years.
The Scientific Facts About NVIDIA
NVIDIA’s chips and systems are turning science fiction…
…into science fact.
NVIDIA is a global visual computing leader, offering processors for gaming as well as design professionals working in creative applications such as computer-aided design, video editing, and special effects. NVIDIA also offers cloud-based streaming for gaming devices.
As the chart shows, the gaming industry has been good for NVIDIA:
There are many plays on the explosion of VR/AR, but NVIDIA produces high-quality, 3D gaming GPUs and graphic cards that are crucial for the operation of the latest VR/AR headsets.
NVIDIA’s proprietary technologies include Iray VR, which allows users to forge visual and precise predictive designs. VR engineering and design is all the rage and NVIDIA already has a substantial lead in this space.
Iray VR can generate 3D details that make users feel as if they’re immersed in a real-life experience, akin to the holodecks depicted in the Star Trek series.
The company also is collaborating with NASA for developing a Mars VR experience, in preparation for a mission to the Red Planet. Elon Musk’s SpaceX rocket firm is involved in the visionary project.
As VR/AR technology achieves new breakthroughs and its applications expand from games and entertainment to communication, education and telemedicine, NVIDIA’s entrenched position in VR/AR positions the company for continued earnings and revenue growth, even if the broader economy stumbles.
NVIDIA: Baby, You Can Drive My Car
NVIDIA also is focusing on creating chips and systems that make autonomous, or self-driving, vehicles possible.
NVIDIA is teaming up with Paccar (NSDQ: PCAR), an American truck maker that manufactures Peterbilt, DAF and Kenworth big rigs. The partnership has developed a proof-of-concept autonomous truck.
The applications for the transportation industry are huge. Research firm IHS Automotive estimates annual sales of autonomous heavy-duty trucks are on track to reach 60,000 annually by 2035.
NVIDIA is making a big push to cash in on self-driving vehicle technologies. The company also is partnering with automotive supplier Bosch (OTC: BSWQY) to make a computer system for mass-market autonomous cars.
But NVIDIA has a slew of other partnerships in place, including those with Audi (OTC: AUDVF), Daimler (OTC: DDAIF), and Elon Musk’s electric car maker Tesla (NSDQ: TSLA).
The following video depicts the exciting possibilities of autonomous vehicles:
NVIDIA Jumps on the Blockchain Bandwagon
Here’s an underappreciated NVIDIA strength: “blockchains” that use the company’s chips.
Blockchains started with cryptocurrencies. These are digital ways to exchange money, but the money isn’t physical. The exchanges are recorded in blockchains, which form the infrastructure of cryptocurrencies.
Every cryptocurrency is linked to a blockchain, which is a computer database of transactions in the currency. This database is distributed to its creators, called “miners.” These miners add transactions to the blockchain.
Cryptocurrencies are secured by encryption, so governments can’t mess with them. Cryptocurrencies are safe havens in a crisis, akin to a form of “digital gold.”
Blockchains have other uses. Notably, they let businesses store encrypted data in a ledger. Blockchains are used in finance, supply chains, and data storage. This gives NVIDIA enormous prospects in commerce.
Will NVIDIA Go Down In 2019 (Should You Sell)?
The chipmaking sector as a whole has dipped lately, amid a global glut of chips and concerns over a looming economic slowdown.
A few chipmakers have lowered guidance for this year; some investors are spooked about the chip sector’s prospects over the next 12 months.
To be sure, chipmakers that produce “commoditized” chips for more conventional business and consumer tasks could experience price pressures, but NVIDIA occupies specialized niches that require ultra-sophisticated capabilities. As such, demand for NVIDIA’s products should remain strong.
What’s more, NVIDIA is in a position to maintain high profit margins because it can charge more for its value-added engineering.
Overall NVIDIA Forecast and Prediction For 2019
The bears argue that NVIDIA has enjoyed too great a run-up in price and is poised for a correction. The facts say otherwise.
Despite its healthy upward trajectory, the stock remains reasonably priced. NVIDIA shares sport a forward price-to-earnings ratio (FPE) of 25.9, compared to 29.5 for AMD, 11.7 for Intel, 13.3 for QCOM, and 17.5 for the S&P 500. The company’s growth prospects justify the modest premium to the broader market and some of its peers.
The average analyst consensus is that NVIDIA’s year-over-year earnings growth will reach 34.6% next year. Meanwhile, NVIDIA sits on a massive cash hoard of $7.4 billion (most recent quarter). That’s a lot of financial clout that the company can use for R&D and acquisitions.
For this virtual reality stalwart, long-term growth is no illusion.
John Persinos is the managing editor of Investing Daily.