Why NVIDIA Deserves the Premium

NVIDIA (NVDA) has managed to continue growing despite its valuation because of its diversified revenue stream. While graphics processing unit is NVIDIA’s primary source of revenue, the company’s foremost and consistent investment in R&D sector has been the key driver of sales that have surged from just $4 billion in FY14 to an anticipated $7 billion in FY17. NVIDIA still holds the leading position in gaming with key growth contributions arriving from deep learning, professional visualization, and automotive segment.

According to Amazon’s (AMZN) recently updated best-selling graphics cards list, two are based on GTX 1080, four on GTX 1070, and two on GTX 1060.
The list does not even consist of a single graphics card manufactured NVIDIA’s peer Advanced Micro Devices (AMD). This clearly suggests that NVIDIA’s Pascal based graphics cards are performing well as compared to Advanced Micro Devices’ Polaris based graphics cards.

Regardless of being massively more expensive than GTX 1070 and GTX 1060, GTX 1080 holds the first position in the Amazon’s best-selling list.
Why NVIDIA Deserves the Premium
Image by JacekAbramowicz / Pixabay
Most importantly, the company’s gaming revenue growth has been driven by mainly two factors: average selling price and unit growth.

Apart from this, the virtual reality market and driverless car market are the two most booming markets that NVIDIA currently operates in. Though NIVIDIA has grasped a strong position in the autonomous car market, the company is also aggressively focusing on the virtual reality market.

NVIDIA has already established a robust position as the market leader in the desktop GPU market by claiming around 66 percent market share. But the company recently introduced three new notebook graphics cards that facilitate virtual reality for notebooks. Moreover, NVIDIA also claims that these new VR supported notebook card’s processing capabilities come within 10 percent of those of their desktop computer counterparts.

On the other hand, majority of virtual reality supported PCs are formerly using NVIDIA’s processors, but the company is seeking to prolong that benefit even further. The company also detailed that its GPUs are starting to be used in powerful server computers and that those could ultimately power virtual reality from the cloud.


Going forward, NVIDIA’s stellar performance should continue. Although the stock’s valuation may get a little ahead of itself, I think NVIDIA can easily justify the price tag due to its stellar growth potential. As a result, I think investors should consistently accumulate NVIDIA under $60 as the stock has tremendous long term potential for patient investors.
Published on Sep 13, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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