Has Nvidia's Rally Come to an End?

I have been very bullish on NVIDIA (NVDA) and I even recommended investors to buy the stock several times when the market was in correction mode. It seems like investors who took the risk of buying NVIDIA on the dip have been rewarded heftily as shares of the company are up almost 20% in just the last few weeks.

While I still think NVIDIA is a great company that will continue growing, I think the stock doesn’t have a lot of upside potential now and is perfectly valued. Given the rich valuation, I think investors should hold NVIDIA and should only consider buying shares if the stock pulls back.

New Architectures

In recent quarter, the company’s sales rose 12 percent on an annual basis to $1.4 billion, $90 million more than the analyst estimates.
GPU revenue surged 10 percent to $1.18 billion mainly due to 21 percent sales growth in gaming GPUs, 10 percent growth in Tesla GPUs, and 7 percent growth in Quadro workstation GPUs.

NVIDIA’s gaming GPU sales were braced by upgrades regarding gaming PCs, which have been protected from the downtrend in the PC market. NVIDIA also introduced all new VR development kit to take advantage of the rising demand for VR games. Tesla sales were aided by the release of a new datacentre deep learning platform that facilitated web-based companies speed up AI workloads.

Furthermore, by the mid of 2016, NVIDIA and Advanced Micro Devices (AMD) are expected to launch their graphics processors based on all new architectures. These new graphics processors feature latest fabrication technology and will be much more efficient compared to the previously released graphics cards. But, it is highly likely that NVIDIA’s graphics processors will have a substantial performance lead, and will help the company to surge its market share.

NVIDIA’s forthcoming GPU architecture, known as Pascal, will provide an opportunity to maintain its lead in the PC gaming segment and other markets like high performance computing. It will also help the company to snatch some more market share from its foremost rival- Advanced Micro Devices.

In the case of Advanced Micro Devices’ upcoming Polaris architecture, it is expected that launch of Polaris architecture will boost revenue and halt its GPU share decline. However, Advanced Micro Devices lost almost every battle against NVIDIA previous year, so it will be difficult for the company to snatch market share from NVIDIA.

NVIDIA will use a 16 nm process at TSMC, whereas, Advanced Micro Devices will use a 14 nm process at Global Foundries. These much more energy efficient processes are most likely the prevalent factor in the anticipated efficiency power gains of the new GPUs.


I expect NVIDIA to continue outwitting AMD, however due to the stock’s rich valuation, I think investors are better off holding the stock instead of adding to their positions.
Published on Mar 11, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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