NVIDIA Corporation: Could This Spark a Rally in NVDA Stock?

NVIDIA CorporationThis Could Be Huge for Nvidia Stock

The momentum just doesn’t end for NVIDIA Corporation (NASDAQ:NVDA) stock. For many tech companies, 2015 was a volatile year. Nvidia stock, on the other hand, surged an impressive 60.1%. What’s more is that despite experiencing a bit of a hiccup at the beginning of 2016, the company’s shares quickly got back to its upward trend.

On Friday morning, Nvidia stock surged another 13.1%. Why? The company just reported earnings.

In the company’s first quarter of fiscal 2017, Nvidia increased its revenue by 13% year-over-year to $1.30 billion. The number also easily beat Wall Street’s expectation of $1.15 billion. (Source: “Nvidia Announces Financial Results for First Quarter Fiscal 2017,” NVIDIA Corporation, May 12, 2016.)

The company’s bottom line was even better. Nvidia earned $263 million in adjusted net income, representing an enormous 41% increase year-over-year. This translated to adjusted earnings of $0.46 per share, smashing analysts’ earning-per-share (EPS) estimate of $0.32.

The company is firing on all cylinders: “We are enjoying growth in all of our platforms—gaming, professional visualization, datacenter and auto,” remarked Jen-Hsun Huang, co-founder and CEO of Nvidia. (Source: Ibid.)

Of course, great results from the past might not be enough to send shares soaring. Nowadays, the market pays just as much attention to a company’s forward guidance.

Fortunately, the company’s guidance also turned out to be encouraging. For the current quarter, Nvidia expects its revenue to be $1.35 billion, plus or minus two percent. Wall Street had projected revenue of $1.28 billion.

Investors like Nvidia stock because, despite being the market leader, the company manages to grow faster than its competitors. Moreover, as we enter a new era of computing, the chipmaker’s market could be expanding.

In the past fiscal quarter, gaming was one of the highlights at Nvidia. The company launched its flagship graphics processing units (GPU), the “GeForce GTX 1080” and “GTX 1070,” representing the biggest performance gains over the previous generation of chips in a decade.

Nvidia’s gaming business could get another catalyst—virtual reality (VR). You see, many companies have started shipping out VR headsets. But for consumers to fully enjoy the VR gaming experience, they need a computer that is “VR ready.” That’s where Nvidia comes in.

Taking the “Oculus Rift” VR headset as an example, Oculus is offering special pricing on several “Oculus-ready” PCs. These include offerings from Asus, Dell, Falcon Northwest, and Dell’s Alienware. What do these computers have in common? They are all powered by the Nvidia GeForce GTX series of GPUs. (Source: “Oculus Ready PCs,” Oculus.com, last accessed May 13, 2016.)

And that’s not all. Nvidia’s business could get a boost from another hot field today—autonomous vehicles. For cars to drive themselves, they need to process a lot of road and traffic information coming in from all the cameras. Again, that’s where Nvidia comes in.

Earlier this year, the company announced its newest chip for powering self-driving cars—“Drive PX 2.” The chip can handle 12 video camera inputs, as well as LiDAR (light detection and ranging), radar, and ultrasonic sensors. It can then analyze all that information and decide what the next move is for the car. (Source: “Nvidia Boosts IQ of Self-Driving Cars with World’s First In-Car Artificial Intelligence Supercomputer,” NVIDIA Corporation, January 4, 2016.)

In April, Nvidia introduced “HD Mapping”—an end-to-end mapping platform for driverless cars. To put it simply, the platform maps the world ahead. It is capable of detecting up to 1.8 million points per second, giving autonomous vehicles a complete view of their surroundings. (Source: “Beyond GPS: How HD Maps Will Show Self Driving Cars the Way,” NVIDIA Corporation, April 5, 2016.)

The Bottom Line on NVDA Stock

All those exciting segments could make Nvidia grow like a startup. At the same time, the company is already established and has been delivering solid returns to shareholders. In the reporting quarter, Nvidia entered into a $500-million accelerated share repurchase agreement and paid $62.0 million in dividends. For the entire fiscal year, the company plans to return approximately $1.0 billion to shareholders through dividends and buybacks.

Bottom line: the future looks bright for Nvidia stock.