tiprankstipranks
Record-Smashing Quarter Firms Nvidia’s Bull Case
Stock Analysis & Ideas

Record-Smashing Quarter Firms Nvidia’s Bull Case

Nvidia (NVDA) designs and manufactures graphics processing units (GPUs) and microprocessors for computing platforms, including for high-end gaming PCs. I am bullish on NVDA stock.

Back in 1999, Nvidia started a revolution when the company invented the GPU. This monumental event ushered in an era in which the computing industry evolved from the simple CPU (central processing unit, or the brain of the computer), to an era of richer graphics and better multitasking.

Fast-forward to late 2021, and we’re witnessing a time when the global supply of semiconductors, and other essential computer parts, is persistently low.

Thankfully, Nvidia is prepared to meet the demand for high-powered processors and GPUs as we get closer to 2022. At the same time, the company’s financial data suggests that Nvidia’s pioneering work is paying off. (See today’s best-performing stocks on TipRanks)

A Quick Look at NVDA Stock

The first thing to know about NVDA stock is that it does pay a dividend. However, you probably won’t get rich quickly on these dividends, as the annual yield under 0.1%.

Next up, value-focused investors will want to know that NVDA’s trailing 12-month price-to-earnings (P/E) ratio is a hefty 79.2. Some folks will balk at the idea of buying NVDA stock for this reason, as it appears expensive according to that metric.

Admittedly, the stock has risen a lot during the past couple of years. Specifically, NVDA stock soared from $40 in the summer of 2019 to $220 in mid-October of 2021. That could explain the high P/E ratio.

On the other hand, sometimes a stock’s high valuation can be justified when the company is on solid financial ground. After all, expensive stocks can become more expensive when the revenues are pouring in.

Record Revenues Despite the Chip Crunch

You might have read headlines in the financial media about how the makers of computer parts are in trouble due to a global supply crunch.

It’s true that microprocessor manufacturers are under tremendous pressure as the supply simply can’t meet the demand for these parts. Moreover, the demand is increasing, as business activity picks up during the recovery from the COVID-19 pandemic.

On top of that, technology stocks like NVDA came under pressure when the market recently feared an increase in U.S. government bond yields. In particular, the 10-year U.S. Treasury yield recently hit a high of about 1.8% in March, briefly prompting a flight from tech stocks to bonds.

That bond-yield scare came and went quickly, however. The microchip shortage issue is still here, but this hasn’t stopped Nvidia from breaking its own financial records.

Believe it or not, for the company’s second fiscal quarter of 2022, Nvidia managed to rake in a whopping $6.5 billion in revenue. That’s a 68% increase compared to the prior-year’s quarter.

Gaming Remains Strong

If you’re concerned about whether Nvidia is able to translate its revenues into earnings, don’t worry. The company cleared that hurdle easily, posting $2.4 billion in quarterly net income.

That’s a 282% year-over-year increase, nearly quadrupling in 12 months. So, by now, the skeptics should be less bothered by NVDA’s high P/E ratio.

A particular highlight of the quarter was Nvidia’s performance in its Gaming segment. Impressively, the company reported revenues of $3.1 billion from Gaming, up 85% year-over-year.

This says a lot about what’s happening with gaming in 2021. Some skeptics might have been worried that the stay-at-home trade is over, and that gaming is losing its appeal.

If that were the case, then Nvidia wouldn’t post such a strong Gaming segment result. Therefore, there’s still a strong demand for the company’s robust gaming components, which are famous for being able to handle graphics-heavy programs.

Wall Street’s Take

According to TipRanks’ consensus rating, NVDA is a Strong Buy, based on 23 Buys, one Hold, and one Sell rating. The average Nvidia price target is $239.52, implying 8.4% upside potential.

The Takeaway

If you only look at the P/E ratio in isolation, you might be tempted to skip out on NVDA stock.

That could be a mistake, though, as pricey stocks can still increase in value.

Moreover, Nvidia’s strong results, especially in the Gaming segment, demonstrate the company’s ability to justify its elevated share price.

Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles