Shares of the very successful chip maker NVIDIA Corporation (NASDAQ:NVDA) have fallen 21% from their all-time high of $120.92 on February 7, 2017, to $95.49 at the close of the trading session on April 13. However, despite the recent decline in NVDA’s stock price, it has been the second-best performer among all S&P 500 stocks in the last 52 weeks, gaining 157.2%. Only Advanced Micro Devices, Inc. (AMD) stock has had higher appreciation in that period increasing 355.9%.
It is worth noting that the two S&P 500 best performers in the last 52 weeks have been producers of graphics processing unit (GPU), and that is not because of gaming. Although the gaming market had been the largest contributor to NVIDIA’s revenues in its financial year 2017 with 58.8% of total revenues, other markets have been opened to graphics processors in the last few years with higher growth rates.
The high computing power of GPUs is currently used in cloud data centers, and in the automobile market. Applications of virtual reality, artificial intelligence, robotics, internet of things and autonomous vehicles are also using NVIDIA’s GPUs. According to the chip maker, deep learning on its GPUs, which is a breakthrough approach to artificial intelligence will revolutionize primary industries.
Deep learning will deal with challenges including cancer detection, self-driving cars, and weather prediction. In fact, the company’s sales to the data centers accounted for 12% of total revenues in fiscal 2017, and grew 145% from the previous year, much higher than the overall revenue growth of the company 38%. Also, sales to the automotive market, which accounted for 7% of the total revenues increased by an impressive rate of 52%.
In my view, NVDA’s stock is attractive because of the company’s high historical growth rate, and its continuous strong growth prospects. As I see it, the recent decline in its price creates an opportunity to buy the stock at a cost not too steep for investors. NVIDIA’s annual average revenue growth over the last five years was fairly high at 11.6%, and the average earnings per share growth was rocketing at 22.3%. Moreover, the estimated earnings per share growth for the current fiscal year is at 17.9%, and the expected sales growth is at 16.4%.
* 2018 estimate
Comparing NVIDIA’s growth rate parameters to its industry, sector, and S&P 500, which have been significantly elevated, as shown in the table below, emphasizes the impressive growth rates of the company in the last few years.
NVIDIA’s Data Center
The company has shown strong growth in its data center business, and the revenue from this segment increased by 145% between the fiscal year 2016 to the fiscal year 2017, and from $339 million in 2016 to $830 million in 2017. What’s more, NVIDIA’s data center revenues have accelerated their growth in the four last quarters. The company’s data center revenues in the fourth quarter of the fiscal year 2017 of $296 million were higher by 23.3% from the previous quarter and by 205% from the same quarter a year ago, as shown in the chart below.
Source: Company’s Reports
Latest Quarter Results
On February 9, NVIDIA reported its fourth quarter fiscal 2017 financial results, which beat earnings per share expectations by a big margin of $0.16 (19.3%). NVIDIA’s revenues of $2,173 million for the quarter were up 55% year-over-year, and considerably higher than the consensus estimate of $2,100 million. NVIDIA showed significant earnings per share surprise in its last six quarters, as shown in the table below.
Although according to TipRanks, most analysts are bullish on NVDA’s stock giving it a Buy recommendation with an average target price of $112.58 indicating an upside of 17.9%, two analysts had recently expressed a negative opinion about the stock. BMO Capital five-star analyst Ambrish Srivastava reiterated six days ago a Sell rating on the stock with a target price of $85, which is 11% below NVDA’s stock price as of April 13. Meanwhile, Pacific Crest four-star analyst Michael McConnell downgraded the stock twelve days ago to a Sell without a specific target price.
However, I am more with Goldman Sachs four-star analyst Toshiya Hari who reiterated his Buy recommendation for the stock three days ago with a target price of $130, marking a 36.1% rise above the last price (according to TipRanks, I am a five-star blogger).
NVIDIA has shown considerable growth in the last few years, and it has robust growth prospects due to the new applications for its GPUs besides gaming. The increase in revenues year-over-year of its data center segment of 145% and automotive segment by 52% has been very impressive, in my view. All in all, as I see it, the recent decline in its price creates an opportunity to buy the stock at a compelling price.