Nvidia Corporation Stock Is Flashing All the Caution Signals
Nvidia Corporation (NASDAQ:NVDA) has been on rocket ride for some time and for good reason. The company continues to innovate at a furious pace, which has propelled the NVDA stock price to lofty heights. For the year so far, the shares have gained a sizzling 78% and the market cap is at $114 billion. The performance has been better than many of the world’s top tech operators like Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX).
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As a testament to the company’s technology prowess, the MIT Technology Review recently named NVDA the world’s smartest company. The journal noted that the company has “established itself as the leading provider of processing power for AI software, and its newer, AI-related businesses are growing quickly.”
At the core of the company is the GPU (Graphics Processing Unit) chip, which has been tremendous fuel for the NVDA stock price. Developed originally for high-end gaming systems, the technology has proven adept for next-generation applications like AI (Artificial Intelligence), VR (Virtual Reality), AR (Augmented Reality) and cloud computing.
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In other words, this means that the company has been able to greatly expand its market potential. Some of the recent news for NVDA highlights this, such as the following:
Self-Driving Delivery Trucks. NVDA has struck a deal with Deutsche Post DHL Group (DPDHL) to pull this off (the company is the largest mail and logistics company). The goal is to launch the vehicles sometime in 2018. According to NVIDIA CEO Jensen Huang: “As online shopping continues to explode, and the shortage of truck drivers becomes more dire, AI-enabled vehicles will be key to providing last-mile delivery services.”
Drive PX Pegasus platform. This is a system that allows for Level 5 autonomous driving. This means a car does not even need a steering wheel! The plan is to first rollout the technology in robotaxis.
PX Pegasus represents a major breakthrough, as it can process 320 trillion operations per second. This is actually more than ten times the power of NVDA’s PX 2.
Now the self-driving market is still in the early stages and accounts for about 6% of NVDA’s annual revenues. But of course, the growth potential is enormous. Infoholic Research projects that global revenues in the industry will grow at a compound annual rate of nearly 40%, reaching about $126.8 billion by 2027.
NVDA Stock Price and the Competition
There are certainly various risk factors for the NVDA stock price. Let’s face it, the company is being stretched across many verticals, which will be tough to manage.
Yet perhaps the biggest risk is that the competitive environment is getting much more intense. And yes, this should be no surprise. NVDA is focusing on opportunities that are too big to ignore.
So one of the rivals that is gaining traction is Advanced Micro Devices, Inc. (NASDAQ:AMD). Over the past few years, the company has made spot-on investments in new technologies, such as the Risen 3 processor (gaming), the Radeon Vega GPU (for sophisticated graphics computer systems) and Epyc chipset (targeting the datacenter).
But there is also Intel Corporation (NASDAQ:INTC), which has acquired one of the top players in the automotive category, Mobileye. Actually, the chip giant has also snagged some marque customers lately, such as Alphabet Inc’s (NASDAQ:GOOGL) unit Waymo.
Bottom Line on the NVDA Stock Price
The NVDA stock price today is really priced to perfection. Consider that the price-to-earnings multiple is at a 55X. Interestingly enough, Wall Street’s average price target is at $166, which is at a 13% discount!
So given that the competitive environment is heating up, there could easily be some deceleration in the earnings. All in all, for those investors that are looking at NVDA stock price today, it may be a good idea to wait for a better entry point.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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