Bull Of The Day: Nvidia

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Market sentiment has never been more dissonant than it is today, as investors contemplate the implications of the structural upheaval the pandemic and resulting digital renaissance have had on our global economy.

The pandemic rapidly accelerated a number of previously nascent economic shifts and seemed to mark a changing of the guard as Millennials claim their title as the largest consuming generation as well as the most future-focused.

Nvidia’s (NVDA) revolutionary CEO, Jensen Huang, and his constant disdain for the status quo have driven his company to greatness, with every new market-disrupting innovation that this leading chipmaker releases (each sequential product/service release generating faster & greater improvements than the last) captivating the spirit of the next generation.

NVDA is a must-have for every portfolio’s innovation allocation and the -35% markdown from the all-time high it hit 6 months ago presents an excellent buying opportunity. Analysts’ estimates have gone nowhere but up propelling NVDA into a Zacks Rank #1 (Strong Buy), and is now trading its lowest forward P/E since the pandemic capitulation (below 40x).

The pandemic drove the global economy to digitize by 10 years in just 10 months, pulling forward unprecedented demand for Nvidia's hyper-fast GPUs. Society is now conditioned for swift and continuous adaptation to advancing tech, supporting Nvidia's boundless profitable growth with endless innovation at the core.

Analysts are relentlessly bullish on NVDA as the company consistently blows out estimates each quarter. Sell-side analysts have been pushing up their EPS projections over every time horizon, propelling NVDA into a Zacks Rank #2 (Buy).

NVDA exposure is a must for every portfolio's next-generation allocation as the 4th Industrial Revolution kicks off.

Fundamental Breakdown

This GPU powerhouse has been able to more than justify its seemingly rich 35x forward P/E multiple (though lowest in 2 years) with consistently outsized profitable growth that has driven between 40-70% year-over-year revenue appreciation in the past 9 consecutive quarters (flowing down to high-double to triple-digit annual earnings expansions), along with record top and bottom-line results in 7 back-to-back earnings reports.

Nvidia has proven its ability to generate boundless secular growth that has blown past analysts' increasingly aggressive top and bottom-line estimates for years. EPS estimates have been raised across the board after an incredible October quarter, and I still view projection as conservative. Nvidia's most significant profit drivers in gaming and data centers are still just in their nascent phases of development as we enter this digital renaissance.

I expect demand for Nvidia's GPU technology to only accelerate over the next decade as this company paves the way for innovation across sectors.

NVDA is a stock that you can't afford to leave out of your portfolio, and after its recent pullback NVDA is once again in breakout mode. It'd be prudent to seize on this excellent entry point below $300 a share. 

The Future

Nvidia has become the most cutting-edge chipmaker on earth. The company invented the graphics processing unit (GPU), initially purposed for rendering images, but now possesses capabilities beyond graphics cards. Nvidia's hyper-fast GPUs are becoming a necessity in data centers across the globe, most notably in the development of deep learning and artificial intelligence (as I mentioned above). 

Data centers will be a primary end-market for this market disruptor in this world headed towards cloud computing, and Nvidia's hyper-fast GPUs are becoming a necessity. CEO and founder Jensen Huang said in a recent press release that "Nvidia AI is enabling breakthroughs in language understanding, conversational AI and recommendation engines ??? the core algorithms that power the internet today. And new Nvidia computing applications in 5G, genomics, robotics, and autonomous vehicles enable us to continue important work that has great impact." 

Nvidia completely controls the data center GPU market with no close competitors (despite AMD's attempts). This company is crucial to the discovery of true AI, which will be an inflection point in human understanding. NVDA chips can already be found in 9 of the top 10 supercomputers and 2/3rd of the top 500 (including Meta Platform’s new leading AI supercomputer (aka RSC) for its metaverse buildout). 

Nvidia just launched its Omniverse platform for digital game developers to exceed gamers' growing expectations. Nvidia is also leveraging data center capabilities with its latest cloud platform. Just as cloud computing is the future of business data and analytics, cloud gaming is the future of gaming in the metaverse.

These platforms allow anyone to utilize Nvidia GPUs' high-speed, low-latency technology without needing Nvidia's hardware locally, using any digital device from a smartphone to a VR headset. 

Nvidia is also working on a number of enterprise-focused metaverse cloud software and hardware (GPUs). Nvidia’s ability to remain far ahead of the innovation curve in virtually all of its operations I have no doubt that this chipmaker (with a recent proclivity for software innovation) will be a crucial pioneer in this burgeoning sector of virtual worlds as the metaverse grows into its estimated $10+ trillion market opportunity. 

Final Thoughts

Nvidia is a stock that every investor should have some exposure to. Despite its recent drawdown, NVDA remains at a very frothy yet justified market valuation, after more than doubling in the past year, but leaving the stock more vulnerable to short-term volatility as monetary tightening initiates. 

Still, NVDA is trading materially below its consensus 12-month price target and roughly 50% below its most optimistic target. 19 of 22 analysts are calling NVDA a buy today (with no sell ratings), and I couldn't agree more. Whether for the trade or a long-term hold, $225 is a perfect place to enter/add to an NVDA position.