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Red-Hot NVIDIA & Other Chip Bigwigs to Add to Your Portfolio

Tirthankar Chakraborty
·5 mins read

Chipmaker NVIDIA Corporation NVDA is scheduled to report fiscal second-quarter 2020 earnings results on Aug 19, after the closing bell. The global leader in the market for graphics processing units (GPUs) is one of the top performers in the semiconductor industry. Its shares have jumped 108.5% so far this year and have in fact gained 40% since NVIDIA last reported in May. And with quarterly earnings right around the corner, the report could easily make or break its momentum in the near future.




NVIDIA’s Gaming segment, no doubt, is expected to have performed a lot better in the to-be-reported quarter compared to same period last year. This is because the coronavirus pandemic, with the most acute impact on the said quarter, is a big money churner for the video gaming industry. After all, the virus compelled people to stay home, with individuals spending more time on computers and video games for recreation. NVIDIA, in particular, is expected to have benefitted from strong demand for gaming notebooks and the Nintendo Switch. Thus, the consensus for NVIDIA’s gaming revenues, including sales of gaming GPUs and console processors, is pegged at $1.41 billion for the fiscal second quarter, suggesting a 7% annual rise.


Talking about NVIDIA’s Data Center segment, the consensus for revenues is at $1.71 billion, indicating a 162% annual increase. This is because heavy capital spending by Internet giants that have been adding capacity to deal with the surge in COVID-19-related traffic has been a tailwind for NVIDIA’s Data Center segment. 


In fact, demand for high-end data center GPUs increased mostly on strong demand for AIs in cloud data centers.  The coronavirus crisis, which has been disrupting many industries, actually accelerated the adoption of AI in the fiscal second quarter. Subsequently, the growing clout of GPUs on account of increasing adoption of AI techniques in industries like cloud gaming and supercomputing domain certainly holds promise for NVIDIA in the said quarter.


NVIDIA’ automotive revenues might have been affected by the recent auto plant shutdowns but growing demand for its Jetson computing boards that are used in robots, drones and other embedded systems should have certainly boosted the company’s performance in the fiscal second quarter.


As a result, the company’s total revenues for the fiscal second quarter are expected at $3.65 billion, suggesting a 41.7% rise from the year-ago levels. Similarly, earnings per share are estimated to come in at $1.94, indicating a year-over-year increase of 56.5%.


Encouraging earnings performance, undoubtedly, will lead to an uptick in the share price. Also, immense growth opportunities in ray-traced gaming, rendering, high-performance computing, AI and self-driving cars bode well for the company. Its expected earnings growth rate for the current year is 36.4%, in contrast to the Semiconductor - General industry’s projected decline of 11.9%. Further, the company’s expected earnings growth for the next five-year period is a solid 16.9%. NVIDIA currently flaunts a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


But, why just NVIDIA? Investors should get a little more adventurous and increase their bets on other semiconductor stocks poised to gain in the future. In this process, you can double your returns as well. In order to make the search easier, we have selected tech stocks that flaunt a solid Zacks Rank. Notable among them are Micron Technology, Inc. MU, Analog Devices, Inc. ADI and Texas Instruments Incorporated TXN.


Micron has been progressing leaps and bounds, thanks to a surge in demand for memory and flash storage required in cloud data centers, the Internet of Things, autonomous vehicles and new technologies, including 5G, to name a few. Micron is currently banking on revival in DRAM demand and increasing mix of high-value solutions in its portfolio. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 12.3% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 10.3%.


Meanwhile, Analog Devices’ diversified product portfolio is a key catalyst. Its leading market position and focus on communications, automotive and industrial markets remain major positives. Analog Devices currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 9.6% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 13.3%.


Last but not the least, Texas Instruments’ compelling product line-up, efficient manufacturing strategies and low-cost 300mm capacity are expected to drive long-term gains. Its initiative to innovate its product portfolio across both the Analog and Embedded Processing segments should stand in good stead. Texas Instruments currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current-year earnings has climbed 26.6% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 9.3%.


Shares of Micron, Analog Devices and Texas Instruments have soared 50.2%, 51.7% and 74.4%, respectively, over the past three-year period.



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