Are NVIDIA's Best Days Behind It?

2015 was a profitable year for NVIDIA (NVDA), but the company is off to a terrible start this year, as the stock price is already down around 22 percent. NVIDIA’s rich valuation has been punished by the volatile market, however the company is still in good shape. Despite the woes, NVIDIA is still better positioned than peer Advanced Micro Devices, as the stock price of AMD is down around 42 percent year to date.

It’s hard to predict the long-term future of a tech company. Over a long period of time, say about 10 years, many tech companies tend to become obsolete.
Innovative technological enhancements render some businesses models obsolete, and once-dominant firms can very rapidly run into all types of problem. But when talking about capital preservation, as it’s the most significant thing, many technology firms simply are not appropriate. Graphics card giant NVIDIA is one such example.

NVIDIA is the leading firm in the GPU market, as it holds almost 80 percent market share, and it is belligerently pursuing the automotive market. In addition, NVIDIA is also targeting to manufacture chips for autonomous driving industry. Enterprise usage of accelerators, like NVIDIA’s GPUs, is escalating, as processing the considerable amount of data being formed by the rising number of internet based devices needs absurd computational power.

Apart from this, one main thing that should drive NVIDIA in the near-term is the stance regarding future growth that the company issues and the commentary that surrounds that stance. At present, all the tech firms are facing weak PC demand, but NVIDIA has somehow managed to do well as compared to its major rivals. But due to the tough macroeconomic environment, NVIDIA’s shares have plunged considerably in 2016.

If the company endures to appreciate strength in its core gaming graphics processor business despite the fading macroeconomic environment, then it may be able to reverse its fortunes. However, if the company guides significantly lower-than-expected as result of a macro-related go-slow, then it would not be shocking to see NVIDIA’s shares moving downward.

Conclusion

Despite the macro headwinds, I think investors should still hold NVIDIA’s stock till the earnings. Given the company’s diversification, I think it is highly probable that it will buck the downtrend of the market by delivering stunning numbers. If NVIDIA fails to do so, I think share price will continue heading lower. However, in the long-term, I think NVIDIA’s business model is still strong and investors can use any weakness to add to their positions.
Published on Feb 17, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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