NVDA Stock Forecast: Why You Should Invest In Nvidia

motek 1This NVDA stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • The video games industry is a fast-growing opportunity for a graphics accelerator vendor like Nvidia.
  • Nvidia is still the largest supplier of discrete graphics card accelerators. AMD gained market share in Q2 but Nvidia still touts more than 67% market share.
  • The top-selling video cards for gamers are still made by Nvidia. Further, Nvidia’s Data Center-bound GPUs now generates $2.5 billion/year.
  • I expect NVDA to hit $200 by January next year. The coming holiday shopping season will boost sales of Nvidia GeForce products.

I remain long Nvidia (NVDA) because 8 out 10 of the best-selling discrete computer graphic cards on Amazon (AMZN) are GeForce-branded. This goes to show that in spite of the best efforts of Advanced Micro Devices (AMD) Nvidia is still the top choice for gamers. I raise my 120-day price target for NVDA to $200.

NVDA Stock Forecast
(Source: Amazon MarketPlace)

The recent report that Nvidia is preparing to launch more budget-friendly computer graphic cards could reverse AMD’s recent market share gain. Jon Peddie Research reported that AMD stole market share in discrete GPUs from Nvidia in Q2 2019. Nvidia might regain the market share it lost to AMD by becoming more aggressive on selling budget graphics card accelerators.

(Source: Jon Peddie Research)

I won’t be surprised if Nvidia again touts a 75% market share when Jon Peddie Research report its Q4 2019 discrete GPU score card.

The Justification for my $120 PT

An Nvidia willing to fight AMD’s low-priced Navi 4 Radeon video cards makes it more attractive to investors. We know Nvidia rules the high-end market for GPUs. However, it is still important for Nvidia to defeat AMD on budget and mid-range GPUs. The hyper valuation of AMD’s stock is because investors love that company’s recent market share gains on GPUs and processors.

With the death of the cryptocurrency mining boom, Nvidia’s growth is again largely dependent on its GPU sales to gamers. The Gaming Segment contributed $1.313 billion to Nvidia’s Q2 FY2020. GPU sales to gamers therefore contribute more than 50% of Nvidia’s quarterly revenue. Nvidia’s recent move to offer budget-friendly computer graphics cards (like the sub-$300 GeForce GTX 1660) helps protect its largest segment, Gaming.

NVDA Stock Forecast
(Source: Nvidia Investor Relations)

Based on the chart below, it is reasonable to assume that Nvidia’s gaming segment will likely earn $1.5 billion in Q4 FY20. The Q4 quarter coincides with the holiday shopping season. Most gamers with decent employment will spend their 13th month pay and Christmas bonuses on a new GPU.

Yes, a stronger focus on budget-friendly GPUs will not notably increase Nvidia’s profitability. However, market share gains are very important to small and large investors. If Nvidia can regain market share it lost to AMD, the market will likely boost Nvidia’s stock price to $200.

Another justification for my high price target for NVDA is that Amazon still picked Tesla T4 for AWS deep learning and AI inferencing services. As long as AMD cannot compete against Tesla GPUs in deep learning and AI acceleration GPUs, Nvidia remains the better long-term investment.

Based on the chart above, the Data Center business is now contributing more than $2.5 billion to Nvidia’s topline. Not even Intel (INTC) can claim that it is making $2.5 billion/year in deep learning and AI processor sales. Only Nvidia has achieved this much leadership in deep learning because of its Tegra product line.

On this note, I say NVDA’s lower P/E valuation ratios than AMD is a bit unfair. Going forward, NVDA is clearly the better company. It should be NVDA, not AMD, that deserves a FWD P/E GAAP valuation of 60x.

NVDA Stock Forecast
(Source: Seeking Alpha)

Conclusion

Nvidia is graphics processing unit or GPU-centric business. Nvidia does not compete against AMD’s Ryzen x86 processors. The Tegra System-on-Chip business of Nvidia is based on ARM. Nvidia’s GPU business covers data centers, professional visualization, and gaming. These three markets helped Nvidia’s GPU business reach $10.175 billion in annual revenue. This annual contribution could reach $12 billion by 2020 or 2021. Nvidia’s new focus on budget video cards increased its GPU products’ total addressable market. The same tactic could be used to eventually sell budget-friendly Tesla GPUs for data center deep learning and AI computing services.

NVDA Stock Forecast
(Source: Statista)

Nvidia remains the better long-term investment when compared to AMD. Nvidia touts a much larger market share in discrete graphics cards sales. Nvidia is also far ahead over AMD when it comes to data center-centric GPU sales. Data center-bound Tesla AI accelerators are obviously high-margin products.

Unlike AMD, Nvidia also touts consistent profitability and a strong balance sheet. Nvidia therefore can sustain a healthy annual budget growth in research & development. By having a larger R&D budget, Nvidia is assured of always having the best graphics processors for gamers and data centers.

My buy rating for NVDA is backed by its super bullish one-year algorithmic forecast from I Know First. A stock only needs to get a algorithmic forecast score of 100 to receive a bullish signal. NVDA’s one-year forecast score is 609.48.

NVDA Stock Forecast

How to interpret this diagram.

Past Success With NVDA Stock Forecast

I Know First has been bullish on NVDA’s shares in past forecasts. On December 27, 2018, the I Know First algorithm issued a bullish forecast for NVDA. The algorithm successfully forecasted the movement of the NVDA’s shares on the 3 months time horizon. NVDA’s shares rose by 32.61% in line with the I Know First algorithm’s forecast. See chart below.

This bullish NVDA stock forecast was sent to the current I Know First subscribers on December 27, 2018.

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Please note-for trading decisions use the most recent forecast.