Untapped Potential for NVDA Stock?
Any investor who thinks it’s been a bad year for stocks needs to take a closer look at NVIDIA Corporation (NASDAQ:NVDA). Since the start of 2016, this graphics chip-maker has overcome plenty of hurdles and has sent NVIDIA stock (NVDA stock) surging by 183%.
But it’s not exactly the kind of company which catches the public imagination; that level of popularity is usually reserved for the likes of Apple Inc. (NASDAQ:AAPL) or Facebook Inc (NASDAQ:FB), not a semiconductor company with an impossible-to-pronounce name.
Nonetheless, I think this obscurity makes NVDA stock more valuable.
The Steve Jobs and Mark Zuckerbergs of the world are iconic enough to be enshrined in books and films. But their fame and notoriety could actually hurt investors in the long run. Think about it: having such stellar reputations raises expectations to unreasonable heights.
If you doubt the truth of that, just ask Elon Musk.
NVDA stock is attractive in part because it passes beneath the radar. Perhaps the stock is well known to institutional players, tech junkies, and avid retail investors, but it isn’t a household name yet. Don’t be fooled into thinking this inconspicuousness is a bad thing.
Investing is all about finding hidden value. That being said, not every unknown ticker can match NVDA stock for potential. They have to meet three special characteristics:
- A growing base of customers.
- Proven revenue growth.
- A clear path to profitability.
Let’s address these criteria one at a time.
First off, NVIDIA manufactures chips for emerging technologies like driverless cars and artificial intelligence (AI) visualization, meaning there is significant “upside potential.” As demand for those products accelerates, production will grow exponentially. The company will likely exploit its early market position by shutting out smaller rivals and capturing most of the new customers.
(Source: “NVIDIA QUARTERLY REVENUE TREND,” NVIDIA Corporation, last accessed December 6, 2016.)
Last quarter’s $2.0 billion of revenue reflected a 54% increase from the year before. Gaming revenues were particularly upbeat, rising 63% to $1.24 billion. I know that past performance isn’t a guarantee of future performance, but barring a “black swan” event, NVIDIA’s revenue trend looks promising. (Source: “NVIDIA Announces Financial Results for Third Quarter Fiscal 2017,” NVIDIA Corporation, November 10, 2016.)
Finally, we have to look at the bottom line. But don’t be alarmed, NVDA stock investors, this is where your company truly shines. Unlike many of its peers in the tech space, NVIDIA is profitable. It cranked out $542.0 million of quarterly profits, up 120.3% year-over-year.
“We had a breakout quarter – record revenue, record margins and record earnings were driven by strength across all product lines,” said NVIDIA founder and chief executive officer, Jen-Hsun Huang. (Source: Ibid.)
The company even had enough cash flow to buy back $509.0 million of NVIDIA stock, and pay $185.0 million of dividends. It’s clearly not starved for funds. However, this kind of stock should be acted on before it becomes too popular and the potential returns are priced in.