Nvidia: An Investment Case

Nvidia

• Sectors: ‍
• Gaming, AI, 3D design, self-driving cars

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• Overall:
• Total revenue up 68% YoY to $6.51 billion, beat expectations by 2% of $6.30 billion
• No customer larger than 11% of total revenues in any of the past 3 fiscal years (diversified)
• Out of 41 analysts covering NVDA stock, 33 rate it a buy, six have a hold and two have a sell, according to FactSet.

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• Gaming:
• Gaming up 85% YoY to a record $3.06 billion
• Dominant market position, leader in graphics technology
• #1 in PC gaming, more than 3x the revenue of the other major GPU vendor (AMD)
• Drivers
• Expanding population of gamers
• eSports
• VR
• Rising production value of games
• Cloud gaming service

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• Datacenter growth/AI:  
• Datacenter up 35% YoY to a record $2.37 billion
• Datacenter segment growing faster than gaming sector, 40% CAGR vs. 10%
• NVIDIA powers 342 out of the top 500 supercomputers, including 70% of all new systems, 8 out of the top 10
• Every major cloud provider using Nvidia processors as they are the fastest in the industry
• AWS, Alibaba cloud, Azure (MSFT), Baidu cloud, Google cloud platform, IBM cloud, Oracle cloud, Tencent cloud
• Market for AI is massive and Nvidia remains at the forefront of the AI hardware technology as it continues to release faster and more powerful computing AI workloads
• Drivers
• Fast growing adoption of AI in every industry
• Rising unmet computing needs

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• Professional visualization/3D design:
• Strength in automotive, public sector and healthcare
• Release of omniverse enterprise software will be releasing later this year on a subscription basis
• Drivers
• Expanding creative and design workflows
• Mobile workstations
• Rising adoption of VR/AR across all industries

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• Automotive:
• Small contributor to bottom-line (4% of total revenues) however well-positioned to be a benefactory of the growing autonomous/self-driving industry and a new era of transportation
• More than 370 of the companies involved in this field are relying on Nvidia’s open autonomous vehicle computing platform
• Large and diverse customer base
• Audi, BMW, Saic, Mercedes-Benz, Hyundai, Volvo
• Drivers
• Transition to self-driving
• Software-defined cars and AI cockpits
• New software and service business models arising

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• Risks:
• Stretched valuation at 44.42 forward P/E, main competitor AMD at 33.59 forward P/E
• Current supply chain/chip shortage constraints continue longer than expected as currently demand is outpacing supply
• Data center GPU users – Amazon, Microsoft, google are investing to create their own data center chips
• ARM (a Britain-based firm that designs fast, energy-efficient chips used in most smartphones) deal is due Oct. 13^th, if it fails which is seeming likely there could be a minor pullback and possibly a good entry point regardless if Nvidia acquires ARM or not, NVDA’s long term prospects remain intact

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• Price target – $250+, support – $210 (currently trading below 50 day SMA), $194.27 (100 day SMA)
• More of a buy and hold situation – 3-5 year holdings ideally

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• Note about TSLA  
• Announced this weekend that in Q3 2021 they sold 241,300 vehicles globally. Up 73% YoY and 20% QoQ
• TSLA Q3 deliveries the past 4 years
• 2018 – 80.1k
• 2019 – 97k
• 2020 – 139.3k
• 2021 – 241.3k (expected 225k-230k)
• 2022 Year – projects over 1 million vehicles sold