In my previous article about NVIDIA Corporation (NASDAQ:NVDA) from April 19, I suggested that the drop in its price created an excellent opportunity to buy the stock at an attractive price. Meanwhile, NVIDIA delivered on May 9, better than expected first quarter fiscal 2018 results and offered above consensus guidance driving its shares to an all-time high of $121.29, an increase of 27% from its value on April 13, when my article was written.
Chart: TradeStation Group, Inc.
In contrast to its graphics processing unit (GPU) producer competitor Advanced Micro Devices, Inc. (AMD), which recorded a loss in its recent quarter, NVIDIA reported a Non-GAAP earnings per share of $0.85 in its last quarter, a 4.6% above estimates. NVIDIA has been able to beat market expectations in all its last five quarter on both top and bottom line, as shown in the table below.
The Gaming segment with revenue of $1.027 million in the first quarter had still been the major contributor to the company’s revenue with 53% of the total revenue. However, its year-over-year revenue growth of 49.5%, while impressing, was much lower than the astounding revenue growth of the Datacenter segment of 186% year-over-year, accounted for 21.1% of the total revenue.
The chart below shows the Datacenter segment revenues in the last ten quarters, and it clearly demonstrates that since the first fiscal quarter of 2017, revenues of the segment have increased exponentially quarter-over-quarter.
As I see it, the fast-growing demand for NVIDIA’s Datacenter GPU computing platform is not surprising taking into account the artificial intelligence (AI) and the deep learning revolution which according to the company is continuing to accelerate. Internet companies, researchers, and startups are all using NVIDIA’s GPU deep learning platform as their instrument of choice for their futuristic developments.
In my view, the trend of transforming the company from focusing on gaming to Datacenter is very promising. After all, the use of GPUs in gaming has a limit. However, the use of NVIDIA’s Datacenter GPU computing platform is only in its first steps, and it has enormous room to grow.
With all these excellent results and the high growth prospects of the company, investors might wonder if after such a rise in its stock price, now is the proper time to buy the NVDA’s stock? After all, if we look at the company’s valuation multiples; trailing P/E at 48.32, forward P/E at 36.14, price to sales ratio of 10.48, and price to book value at 11.71, the stock is pretty expensive. As such, the stock right now is not suitable for value investors. As for growth-oriented investors, they should evaluate if the company’s annual average sales growth over the last five years of 11.6%, and the average earnings per share growth of 22.2% in this period justify the current price of the stock. As I see it, patient investors with long-term outlook could consider buying the stock right now; less patient investors could wait for a correction in the stock price to start buying the stock.
According to TipRanks, eight best performing analysts have reiterated their recommendation on NVDA’s stock soon after the company delivered its recent earnings report. Five top analysts have reiterated their Buy recommendation and three have given Hold recommendation. Although the target price offered by those eight top analysts were between $105 to $152, the average target price of best performing analysts is at $122.29, practically not change from the current price, which sounds reasonable in my opinion.
NVIDIA is a great company, and it is well positioned for continued high growth. In my opinion, the trend of transforming the company from focusing on gaming to Datacenter is very promising. However, as I see it, after the strong rally in its price NVDA’s stock is suitable right now only for patient investors with a long-term outlook.
Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article, and he has no plans to initiate. The author is not receiving compensation for this article except from Smarter Analyst. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.