NVDA Stock Forecast: NVidia Driving Profits in Q2 2019

This article on NVDA Stock Forecast was written by Clarence Toh, an Analyst at I Know First.

Summary:

  • Partnerships with Microsoft and Volvo extends Nvidia’s presence in the gaming and transport industry
  • Strong Q2 earnings call gives Nvidia advantage over competitors
  • Several aspects of their business is showing immense potential of growth

Overview

Nvidia Corporation (NASDAQ: NVDA) is an American technology company incorporated in Delaware and based in Santa Clara, California. It designs graphics processing units (GPUs) for the gaming and professional markets, as well as system on a chip units (SoCs) for the mobile computing and automotive market. Its primary GPU product line, labeled “GeForce”, is in direct competition with Advanced Micro Devices’ (AMD) “Radeon” products. Nvidia expanded its presence in the gaming industry with its handheld Shield Portable, Shield Tablet and Shield Android TV.

nvda stock forecast
[Nvidia]

Multiple Partnerships

Nvidia announced a partnership with Microsoft to give Minecraft a massive graphics overhaul. The chipmaker would bring support for “ray tracing” technology to “Minecraft.” Microsoft purchased “Minecraft” studio Mojang in 2014, and the game remains among the most popular in the world, with more than 91 million monthly users as of October. The addition of ray tracing serves as one of the game’s biggest updates since its release in May 2009. Ray tracing is designed to make light in video games act more naturally, improving shadows, reflections and sources of light. Part of “Minecraft’s” popularity comes from its low bar-of-entry relative to other games. While some games require expensive hardware, “Minecraft” can be played on mobile devices with little change in performance. Ray tracing will first arrive on PCs equipped with Nvidia’s RTX graphics cards.

In June,  a new partnership with the Volvo Group to develop AI autonomous trucks was announced, utilizing NVIDIA’s end to end AI platform for training, simulation and in vehicle computing. The strategic partnership will enable Volvo Group to develop a wide range of autonomous driving solutions for freight transport, recycling collection, public transport, construction, mining, forestry and more. This collaboration is a great validation of Nvidia’s long-held position that every vehicle will have autonomous capability one day. Investors can expect growth in this area.

Autonomous features can bring enormous value to the trucking industry in particular, as the demand of online shopping put ever greater stress on the world’s transport systems. Expectations for overnight or same day deliveries create challenges that can only be met by autonomous trucks, which can operate 24 hours a day. To help address these needs, NVIDIA has created an end-to-end platform for autonomous vehicles. From AI computing infrastructure to large scale simulation to in car computing. Multiple customers from OEMs like Mercedes-Benz, Toyota and Volvo to Tier 1s like Bosch, Continental and ZF are already onboard. This is a $30 billion addressable market by 2025.

Strong Q2 Earnings

During the earnings call, Nvidia’s Q2 revenue was $2.58 billion. The company’s gaming business boasts revenue of $1.31 billion. Q2 GAAP gross margins was 59.8% and non-GAAP was 60.1% up sequentially. This reflects higher automotive development services, a favorable mix in gaming and lower component costs. GAAP operating expenses was $970 million and non-GAAP operating expenses were $749 million, up 19% and 8% year-on-year respectively. Nvidia continues to remain on track for high single-digit OpEx growth in fiscal 2020 while continuing to invest in the key platforms driving their long-term growth mainly in graphics, AI, and software and cars. GAAP EPS was $0.90 down 49% from a year earlier. Non-GAAP EPS was $1.24, down 36% from a year ago.

Business

Product releases

Nvidia has had a few product releases recently. The company launched their RTX Super lineup for desktop gamers, contributing to their greatest ever number of gaming laptops. Also, they launched new RTX Studio laptops for creators. In July, Nvidia unveiled three GeForce RTX Super GPUs, which promises to deliver the best in class gaming performance and power efficiency and real-time ray tracing for both current and next generation games. These GPUs deliver a performance boost of up to 24% from our initial Turing GPUs launched a year earlier.

Competitive advantage

The NVIDIA GeForce RTX are the only graphic cards in the market with hardware support for ray tracing. They deliver a 2 times to 3 times performance speed up over GPUs without a dedicated ray tracing core. The laptop business continues to be a standout growth driver as OEMs are ramping a record 100 plus gaming laptop models, ahead of the back-to-school and holiday season.

Targeting a specialized group of people

At Computex in May, NVIDIA RTX Studio laptops were unveiled. It is a new design artist platform that extends Nvidia’s reach to the large underserved market of creators. In the age of YouTube, creators and freelancers are a rapidly growing population and Nvidia have identified that creators traditionally have not had access to professional grade workstations through online and retail channels.

Superior product

RTX Studio laptops are designed to meet their increasing complex workflows such as photo-realistic ray tracing, AI image enhancement and ultra high resolution video. Powered by the RTX GPUs and Optimus [Phonetic] software, RTX Studio laptops deliver performance that’s up to seven times faster than that of the MacBook Pro. 

Data centers

Nvidia’s data center business has revenues of $655 million, down 14% year-on-year and up 3% sequentially. In the vertical industries portion of the business, expanding AI workloads drove sequential and year-over-year growth. Sales of NVIDIA GPUs for use in the cloud were solid while sales for internal hyperscales use were muted, the engineering focus on AI is growing.

Broad base of customers across multiple industries 

Many companies adopt NVIDIA’s platforms to harness the power of AI, public sectors, higher education and financial services were among the key verticals driving growth this quarter. This is evident when Nvidia won Lighthouse account deals in important industries that are on the cusp of being transformed by AI. In addition, in the retail sector, Walmart is using NVIDIA GPUs to run some of its product demand forecasting models slashing the time to do so in just four [Phonetic] hours from several weeks on CPUs. By accelerating its data science workflow, Walmart can improve its algorithms, reduce development cycles and test new features.

Anticipating rise in notebook gaming

Notebook gaming is one of the fastest growing segments of the gaming platform world. The number of notebooks that are able to game is only a few percent. Hence Nvidia has identified this as an underexposed area of growth. The aim is to produce thinner light notebooks that is able to run powerful games. This has grown significantly year-over-year and is expected to grow through the second half and through next year.  

Conclusion

A lot of growth is expected to come from a strong business model, with little competition. It is likely that investors can be bullish on NVDA stock in Q3 and Q4 2019. It is definitely worth monitoring their data center and notebook gaming forays to see if any action may lead to good results in the market.

I Know First Bullish NVDA Stock Forecast

nvda stock forecast

This is the I Know First NVDA stock forecast for the time horizons of 1 month, 3 months and a year. It currently has a positive outlook with a signal strength of 546.69 and predictability indicator of 0.84 for the next 365 days.

Past I Know First Success with Nidia Stock Prediction

On October 12, 2016 I Know First made bullish NVDA stock forecast for the next year and NVDA rose over 189% in that timeframe.

This Bullish stock forecast on Nvidia was sent to current I Know First subscribers on October 12, 2016.

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nvda stock forecast

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