Is NVIDIA Worth the Premium Valuation?

Despite NVIDIA’s (NVDA) rich valuation, the stock has continued defying gravity and has moved higher. NVIDIA has a trailing P/E of almost 35, but since the company does have over a billion dollars in cash, it’s valuation doesn’t really matter. Moreover, with NVIDIA having its presence in many fast growing markets, I think the stock deserves the premium.

Ambarella vs. NVIDIA

According to Ambarella, sales of the company’s image application processors for security cameras, connected cars, wearables, and drones could endure to drive its impending growth.

On the other hand, the stock price was down 40 percent throughout 2015 mainly due to issues regarding looming rivalry from Qualcomm, dependence on GoPro and the entry of lower-priced firms in China.
Due to these pressures, the analysts expect that Ambarella’s sales will drop around 5 percent, equated to 38 percent growth previous year.

As compared to Ambarella, stockholders are in favour of investing on NVIDIA, as it surged 70 percent during 2015. The main reason behind this success was NVIDIA’s aggressive focus on the graphics card market despite the slothful PC market. In 2015, NVIDIA’s add-in graphics board market share reached 79 percent in fourth quarter of 2015, up approximately 3 percent as compared to that in 2014.

Apart from this, the company turned and sold its Tegra mobile chips, which formerly botched to grasp enough market shares in the smartphone and connected car manufacturers division. But, in 2015, the company sold a lot of Quadro chips for workstations and Tegra chips for cloud servers and displayed 40 percent and 7 percent surge in Tegra and Quadro sales respectively. The company’s total sales surged 12 percent to $1.4 billion.

These figures seem robust, but the company’s continuous rally has magnified the stock’s valuation. According to the current situation, the consensus forecasts NVIDIA to grow by only 5 percent throughout the approaching five years. Now NVIDIA does not fit in the same category as that of Ambarella, but the company’s encouraging growth in various markets might result cause onward approximations to be elevated.


Due to NVIDIA’s strong presence in multiple markets, I think the stock deserves the premium valuation and would still recommend holding it. With a billion dollars in cash, NVIDIA can continue expanding in several markets and given its track record of success, I will not be surprised if the company succeeds in other sectors as well.
Published on Apr 25, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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