by winston » Thu Apr 26, 2018 8:51 pm
not vested
Cutting Edge Stocks: Nvidia
The only real question about Nvidia Corporation (NASDAQ:NVDA) is its valuation.
Nvidia is absolutely dominant in GPUs, where it has benefited from cryptocurrency mining and, more importantly, consistent growth in high-end gaming demand. And it has new opportunities in automotive applications and datacenter.
Indeed, it’s the datacenter opportunity that might be the most attractive for Nvidia, even if it gets less hype than the potential revenue and profits from self-driving cars.
Datacenter revenue rose a whopping 132% in 2017, according to the 10-K. Nvidia is benefiting from a growing market – but it’s also taking share from Intel Corporation (NASDAQ:INTC) and holding off upstart Advanced Micro Devices, Inc. (NASDAQ:AMD).
As far as fabless semiconductor manufacturers go, Nvidia seems to be best-in-class. That said, the market is pricing NVDA stock as such. NVDA trades at nearly 36x 2018 consensus EPS. That’s a big number for any stock – and downright huge in the traditionally cyclical semiconductor space.
But as I argued in December, Nvidia isn’t just another semiconductor stock. A massive Q4 beat, with EPS growth of 52%, shows the power of its increasing revenue and operating leverage.
And backing out $8 per share in cash, and using 2019 consensus, NVDA’s forward multiple comes down to a more reasonable 30x.
I thought coming out of the quarter that NVDA had a clear path to $250. Nvidia stock indeed hit that level, before pulling back.
At a current price around $225, a return alone – which is roughly equal to the average analyst target price – suggests 11% upside.
Given Nvidia’s technological dominance in key, growing, markets, I expect the long-term gains to be much, much higher.
Source: Investor Place
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