Have All Nvidia (NVDA) Rumors Already Been Priced In?
The latest developments in the Nvidia NVDA rumor mill arrived Monday after YouTube hardware commentator “Gamer Meld” posted a video showing what he claims is an email from one of Nvidia’s “major board partners.” It contains details about the firm’s upcoming “Turing” GeForce GTX Series 11 GPU.
Rumor Has It
The email mentions at least four Turing models, and claims the following release dates:
Nvidia GeForce GTX 1180 (August 30th)
Nvidia GeForce GTX 1180+ (September 30th)
Nvidia GeForce GTX 1170 (September 30th)
Nvidia GeForce GTX 1160 (October 30th)
The release of this new line of graphics cards was delayed due to a glut in Series 10 cards, according to the email. Nvidia supposedly planned to first lower supplies of older cards before announcing and releasing its new product line.
Nvidia typically schedules the release of its cards on a Tuesday or Thursday, a trend that two of the three alleged dates align with (September 30th falls on a Sunday). It should be emphasized that this information only comes from one source. However, the story has since been picked up and circulated by PCGamer, Wccftech, TechRadar, and other similar publications.
Investors should note that CEO Jensen Huang stated in early June that Nvidia’s new GPUs would not come out for “a long time from now,” which was the last official update.
But a growing number of sources are corroborating a late-summer release. Industry insiders noted during Taiwan Semiconductor’s TSM earnings release that heightened shipments of Nvidia’s Series 11 GPU would serve as a catalyst for the firm.
Assuming the release does happen, how can we expect NVDA shares to perform? We’ll need to go back in time, to get a better idea.
What’s Already Priced In?
It took Nvidia over three years for its shares to go from IPO levels of around $1.60 in 1999 to then-peak $22.30 at the end of 2001. Nearly five years later it would reach that peak again, and another ten years after that, in 2016, it would finally surpass that point comfortably. Since then, the Nvidia rocket ship hasn’t paused for even a simple refueling, as we can see below:
NVIDIA Corporation Price, Consensus and EPS Surprise
NVIDIA Corporation Price, Consensus and EPS Surprise | NVIDIA Corporation Quote
From the beginning of 2016 until now, Nvidia has soared over 660% to reach current levels of about $250 per share. Although the first two months of 2016 were quiet, growth was sparked by three strong earnings beats thanks to strong performances in its gaming, professional visualization, datacenter, and auto segments.
The company released its “Pascal” GeForce GTX Series 10 GPU that same year, and in the ensuing two years has been unable to keep up with demand from gamers, crypto miners, and AI researchers. This drove GPU prices up dramatically, hurting retail consumers but helping Nvidia reach unprecedented levels of revenue. But in recent months, demand has cooled as popular cryptocurrencies such as Bitcoin and Etherium saw large drop-offs.
Still, Bitcoin has regained 15% this week on the back of renewed investor optimism. There has been encouraging global regulatory development and news that big banks are looking to develop exposure to the crypto industry. New Goldman Sachs GS CEO David Solomon said as recently as last month that his company is looking to expand its crypto services right now (also read: Here’s Why Bitcoin Has Gained 15% This Week).
This is important because while crypto-related purchases account for only a portion of Nvidia’s sales, it could be in the midst of building toward another major bullish run. With a new lineup of cards on the horizon, Nvidia is well-positioned to not only capitalize on this market, but continue to expand its presence in big data, automotive research, and the worldwide PC gaming market, which is growing at a CAGR of 10%.
Nvidia’s GPU business generated 84% of its fiscal 2018 revenue. Shares of Nvidia have gained over 10% in the last three months and 3% in the last four weeks, reflecting similar optimism across the market. But while it may seem to investors that these growth catalysts are already priced in, this may not necessarily be the case.
With a Price/Sales ratio of 14.2 over the last twelve months, Nvidia is trading at a significant premium to the 5.5 average across the “Semi-General” market. But at the same time, it has averaged a 40.1% earnings surprise over the last four quarters, and has posted a positive, double-digit surprise for the last nine quarters.
The release of a new graphics card line is to Nvidia what a brand-new iPhone is to Apple AAPL, except potentially even more pronounced since it has been over two years since Pascal’s debut. Nvidia is not a “cheap” stock per se, but has enough potential and momentum behind it to remain a compelling investment option.
Investors may want to wait for more tangible news on the Turing line, but should remain aware of the possibility that good news could send shares of Nvidia skyrocketing even farther. Turing could also potentially miss inflated market expectations, meaning that this investment, like any other, isn’t guaranteed to leave investors in the black. Still, given Nvidia’s history and recent news, this seems like an unlikely possibility.
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