Since the beginning of 2014, NVIDIA Corporation (NASDAQ: NVDA) stock has risen more than 273.0%. And that doesn’t include NVIDIA’s $0.46 dividend, which, at the current price, tacks on an addition 0.77% of total return annually. But can this spectacular run in NVDA stock continue and, if so, for how long?
What Does NVIDIA Do?
NVIDIA coined the term “GPU” to define the graphics processors they make. And today those processors are designed and built for four specific market segments: video games; designers; artificial intelligence (AI); and, cloud-based visual computing. (Source: “CFO Commentary on Second Quarter Fiscal Year 2017 Results,” NVIDIA Corporation, last accessed September 11, 2016.)
So, where will NVIDIA’s growth come from in the future,and what will it mean for NVIDIA stock going forward?
Growth Drivers For NVIDIA Stock
When NVDA stock reported its second-quarter 2017 earnings, the company defined its future growth drivers as gaming, virtual reality (VR), AI, and self-driving cars. (Source: “NVIDIA August 2016,” NVIDIA Corporation, last accessed September 11, 2016.)
Gaming is a mature business, however there still appears to be plenty of opportunity for NVIDIA stock. This is because gaming is transforming from being confined to a desktop, set-top box, or handheld device to being delivered in full VR mode. As such, some consultants expect gaming to become a $28.0-billion industry by 2020. (Source: “2016 will be a breakthrough year for Virtual Reality – triggering wider consumer uptake in 2017 and 2018,” PricewaterhouseCoopers, last accessed September 11, 2016.)
But VR is not just about games, and this presents plenty of opportunity for NVDA stock. VR and augmented reality (AR) are nascent businesses that are poised to be huge, estimated to be a $120.0-billion market by 2020! VR/AR will impact nearly every aspect of our daily lives in the coming decades. It will change the way children are educated, how medicine is practiced, and how nearly every industry in the world conceives, designs, and builds things. (Sources: “Virtual reality (VR): a billion dollar niche,” Deloitte, last accessed September 11, 2016, and “The reality of AR/VR business models,”DigiCapital, last accessed September 11, 2016.)
VR/AR will also have a huge impact on how consumers buy things. Just last week, the Harvard Business Review opined that, by 2020, retailers could invest $30.0 billion in VR to transform how people shop. (Source: “Virtual and Augmented Reality Will Reshape Retail,” Harvard Business Review, September 9, 2016.)
NVIDIA spends about $113.0 million a month on research and development (R&D). And my suspicion is that a fair amount of that heads into AI research. I also suspect that NVIDIA stock will likely be a beneficiary of this investment. That’s because the industry is expected to be valued at some $31.2 billion by 2025. (Source: “Artificial Intelligence for Enterprise Applications,” Tractica, last accessed September 11, 2016.)
Then there’s the autonomous (or self-driving) car. The market for “partially and fully autonomous vehicles” could be $42.0 billion by 2025 (Source: “Autonomous Vehicle Adoption Study,” Boston Consulting Group, last accessed September 11, 2016.)
So What Can Investors Expect From NVIDIA Stock?
By 2025, the combined size of the gaming, VR/AR, AI, and self-driving car markets is expected to be worth more than $220.0 billion. NVIDIA is the leader in graphics processors. And, while there is a lot of competition out there, I think that NVDA stock stands a pretty good chance of gaining a good share of these growing market segments. Investors with a long-term time horizon (only nine years gets us to 2025) could be well rewarded owning NVDA stock. It might be a nice ride.