The Gold Standard of U.S. Semiconductor Companies
Tech investors who want a sure-fire way to sleep well at night while holding tech stocks should consider one semiconductor stock that is a generational gamechanger.
Short-duration trades in chip companies are susceptible to major selloffs because of the inherent boom-bust nature of the chip market.
Combine that with geopolitical headwinds that make consistent contract negotiations a possible one-off activity making it difficult to decode the short-term movements of the underlying shares.
Even with all the difficulties, Nvidia (NVDA) is a must-own stock for anyone that has any ambition to overperform deploying a basket of tech stocks.
This is the gold standard of technology buttressed by a plethora of secular growth drivers.
There are not many companies out there recreating a significant smorgasbord of multiple long-term growth segments.
Nvidia’s cash cow is its secular growth in gaming and graphics chips plus the data center business.
But it also has skin in the game in AI and machine learning, autonomous driving, and professional graphics.
Not only do they participate in these segments, but they are downright beasts in every segment they take part in which validates the firm as a high-quality operational outfit.
Basically, the company’s GPU (graphics processing unit) offerings are the best in the business.
I tell my high school nephews to find a job at Nvidia in the future.
Even though competition has increased—how could it not?—we know Nvidia’s products are top-notch because its margins are better, and they are able to command a higher premium with no push back.
Accelerating growth is really the common denominator found across the myriad of segments.
I expect 44.6% total revenue growth this year to $15.8 billion.
This estimate stood at just $10.8 billion at the beginning of the year and thus, I have moved up my revenue forecasts by about 50%.
Revenue estimates increasing by $5 billion for this year confirm that Nvidia is one of the tech titans of the world.
Constant revenue upgrades are the hallmark of a healthy tech company and its parabolic rise is in the early innings.
And can you believe that this was a supposed down year because of the macroeconomic weakness?
Imagine what they could do during a “good” year?
Earnings are forecast to grow an even more stellar 57% to $9.11 per share this year.
This year, 2020, isn’t just a demand-driven event due to the novel coronavirus.
The runway is long on the supply side and the elevated demand for its products is just one piece of the puzzle.
Soon enough Nvidia (NVDA) will report quarterly results on Wednesday, November 18, and they will most likely confirm my hunch that the overperformance in 2020 will spill over into 2021 and beyond.
The company has been a prime beneficiary of the “shelter-at-home” driven secular trends such as gaming and data center.
The underlying stock has doubled to over $530 this year and I forecast Nvidia to deliver a solid beat and model above any extreme estimate, driven by an expectation of an extra week of revenue that may not be fully accounted for.
The unparalleled growth due to the renaissance in video games cannot be understated and now that a third wave in the U.S. and second wave in Europe is inevitable, gaming will be thrust into the limelight again.
Some of the segments that I see expanding rapidly are 153% year-over-year growth for Datacenter and a 27% year-over-year increase for Gaming, with the two segments making up 41% and 47% of sales, respectively.
Even though they continue to hit on all cylinders in an otherwise challenging macro environment, I feel the overall premium is reflected in its share price.
Even though operational execution is likely to be perfect, I don’t see much upside in the stock in the short-term and investors will need to use any 10% dip to buy and hold Nvidia long-term.
I don’t recommend short-duration trades in Nvidia because of the volatile nature of the price action.
This is a transformational tech institution and is absolutely worth owning.
