Throughout 2018, NVIDIA was blessed with 45% rise in its market share price and analysts were giving positive outlook on NVIDIA’s future prospect in terms of its growth and revenue. However, by the end of September 2018, the stock suffered a sudden 50% nosedive to USD146.45 last week. Investors are seen to be going rather bearish as prices continue to fall. The possible reason behind this plunge could be short term as according to NVIDIA management, this was due to the temporary hype of cryptocurrency that went bust.
Could this possibly be the downturn of NVIDIA or is it merely a temporary setback? To better understand NVIDIA’s current volatility, we will look into 6 potential aspects of NVIDIA before making any investing decisions:
1.Dominant Among Its Peers
NVIDIA is the world leading designer of graphic chips that enhances user experience on computation platform. With a wide range of market, NVIDIA focuses not only on advance PCs for gaming, but also for data centers and automotive infotainment systems. The business is currently expanding from traditional PC graphic application to more complex and potential opportunities such as artificial intelligence and autonomous driving by leveraging on its high-performance GPUs.
2.Powerful Business Segments
NVIDIA’s business is broken down into 2 segments which is the GPU and Tegra Processor with GPU being its largest source of income contributing 84% of its revenue.
There are different types of GPU responsible for varies aspect such as mainstream gaming, cloud-based game streaming, Artificial Intelligence (A.I) deep learning, A.I for researchers and developers, cryptocurrency-specific GPUs and so forth.
Tegra Processor, on the other hand, focuses on automotive supercomputers and software stacks for self-driving capabilities, power efficient A.I computing platform, mobile-cloud services and so forth.
3.Promising Growth Plans
NVIDIA has announced its new GPU architecture for Google Cloud services and accelerate artificial intelligence for its customer. Over the next few years, we may notice the adoption of A.I aided computing in many aspects of consumer and commercial application.
Apart from that, the CEO of NVIDIA, Jensen Huang has announced a new product brand, AGX for its autonomous, edge computing and robotics purpose. Not only that, NVIDIA has showcased their AGX development system for customers and researchers who intend to apply A.I processing to robotic systems. AGX had gotten traction from Japanese companies such as Yamaha which will be used to power A.I driven machines from agriculture to cars to marine products.
NVIDIA also intends to explore the world of medical. The CEO believes that the company is able to improve current medical instruments with the application of A.I to increase sensor data quality from the existing machines. With the help of its A.I system, NVIDIA will be able to shorten the time, increase productivity and quality of medical instruments.
4.Potential R&D and Competition Risk
Out of all expenses, NVIDIA is highly dependent on its research and development expenses. Despite that, in comparison to its revenue, research and development only consumes 19% of its total revenue. With its growing revenue, we can say that the company’s research and development team is doing a fantastic job!
However, despite being the leader in its industry, NVIDIA is constantly pressured by industry peers such as Intel Corporation, Salesforce.com, BOE Technology Group and so forth.
The CEO of NVIDIA, Jensen Huang, came from a humble background in Taiwan to becoming NVIDIA’s billionaire CEO in America. He is a persistent leader who have been guiding his company for nearly 25 years. CNBC’s Jim Cramer praised the CEO to be a person of vision and possibly the “Albert Einstein of our era”. NVIDIA’s billionaire CEO was also called “genius” in private by his biggest competitors.
Analysts and experts from Harvard Business School referred him to be a thoughtful leader and puts him at par with tech industry stalwarts such as Jeff Bezos and Elon Musk. In 2017, Huang was titled Fortune’s Businessperson of the Year, defeating formidable big-shots such as Salesforce’s Marc Benioff, Jeff Bezos of Amazon and so forth.
Huang vows to implement A.I to be more affordable as he also believes that by 2021, driverless cars will be available with the help of NVIDIA technologies. Despite massive competition, with Huang’s leadership, NVIDIA remains its leadership status in its industry which led to its exploration in data centers, smart cars and infrastructure as well as industry automation. NVIDIA has now partnered with several automobile companies such as Tesla, Audi and Toyota for self-driving technology.
6.Growing Financial Track Record
Based on NVIDIA’s financial track record for the past 10 years, the business had been growing profitably. The overall revenue generated by its gaming, datacenter and professional visualization the past 10 years had been growing exponentially as well. Despite NVIDIA’s increasing cost of chips manufacturing, the company is able to generate strong and growing gross profit margin consistently over 30%. This is an indication of a strong moat as the demand of NVIDIA’s chips are rapidly enlarging. Operating expenses of NVIDIA comprise of research and development expenses, sales, general and administrative expenses grew due to increasing employees’ compensation and dispute settlement with Samsung and Qualcomm, and restructuring due to the winding down of Icera modem operation. Despite these expenses have gradually increase over the past 10 years, the firm was able to maintain an exponential growth in its net profit which is equally impressive from an investor’s perspective.
Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author involved in the writing of this message has no vested interest in the companies. Please consult a professional for expert financial or other assistance or legal advice.