Twice so far this year, I’ve suggested you buy stock in Nvidia (NASDAQ:NVDA), and if you did what I suggested, you made money, because Nvidia stock is a winner.
I admitted in January they were under pricing pressure, and suggested in February they were past the market trough, but my call on the stock isn’t based on short-term moves.
Nvidia chips, originally developed for computer graphics, are at the heart of artificial intelligence (AI) and machine learning. There are many analysts who will write at length about AI failures and how to avoid them. That’s because there are so many AI opportunities out there.
Over the next few years we’ll be leaving the era of people looking at their phones and walking into light poles, entering an era where people are so busy thinking with their phones they walk right into traffic.
We will be leaving an era where only CEOs and super geniuses had personal assistants, into a world where any middle-class schmuck can boss around something like Iron Man’s “Jarvis” character.
We’ll be leaving an era where people imagined what once happened somewhere and entering one where they put on a pair of glasses to see it happen in front of them.
We’ll be leaving an era of fighting traffic and entering a world where accidents happen without our having to cause them.
Artificial intelligence and machine learning applications will always be a little buggy, but they’re still going to become reality. Clouds will become quicker, devices more intuitive, and the range of things that carry intelligence will expand.
Nvidia chips will be at the heart of it.
At its Mar. 27 opening price of about $176 per share, Nvidia is selling at 26 times last year’s earnings, and 33 times this year’s expected earnings of $5.35 per share. The market cap of $107 billion represents about 10 times last year’s revenue of $11.7 billion. The stock isn’t cheap.
Nvidia’s fiscal 2019, announced Feb. 14, showed $2.21 billion in revenue, down 24% from a year earlier, but full-year revenue of $11.72 billion, up 21% from fiscal 2018. The company returned $1.95 billion to shareholders in stock repurchases and dividends and plans to increase that to $3 billion this year.
More important, if you have a five-year time horizon and you’re investing rather than speculating, Nvidia should come good for you, even at today’s price. While Amazon.Com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and the other Cloud Czars are all developing fast chips for their clouds, most enterprises don’t have that kind of money, and Nvidia has a head start on their business.
Nvidia is also evolving from a chip vendor into a solutions vendor. The $6.8 billion acquisition of Mellanox (NASDAQ:MLNX), which makes “networking fabric” that moves data around within cloud clusters, will give it a place on every CEO’s “hybrid cloud” shopping list.
I’ve written many times here about how hardware is becoming software and Nvidia is also becoming a software power, with tools like GauGAN turning rough sketches into photorealistic images in seconds.
Nvidia’s chips and tools are creating an ecosystem around the next generation of AI applications. ny company seeking a place in that future is going to be seeking value from them.
Nvidia has spawned a world of super-fast processing for all kinds of complex input, delivering answers as fast as people can ask questions, transforming how we interact with intelligent machines of all sorts.
This is the revolution of the 2020s. Just as Google developed the cloud in the last decade, and looked pricey a decade ago, so Nvidia’s revolution has just begun.
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