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Nvidia Stock Analysis: Summary

June 16, 2024
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FinMeUp
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FinMeUp

Brief, easy-to-understand analysis for beginners

 

About

Nvidia is the leading Graphics Processing Unit GPU maker in the world. The company was established in 1993 and currently has approximately 22 500 employees. 

Before we dive in, lets get all the tech lingo out of the way:

GPU, short for Graphics Processing Unit, is a specialized processor originally designed to accelerate graphics rendering. GPUs can process many pieces of data simultaneously, making them useful for gaming, video editing, and machine learning applications.

Nvidia operates as a fabless semiconductor company. Fabless manufacturing is the design and sale of hardware devices and semiconductor chips while outsourcing their fabrication (or fab) to a specialized manufacturer called a semiconductor foundry. 

A semiconductor is an essential component of computers and electronic devices. It is typically a solid chemical element or compound that conducts electricity under certain conditions. Semi-conductors enable advances in communications, computing, healthcare, military systems, transportation, clean energy, and countless other applications.

 

Business

Nvidia operates in four market platforms: Gaming, data center, professional visualization, and automotive markets. 

Segment revenue contribution is as follows: 

  • Data Center: 45% (2021: 36%)
  • Gaming: 44% (2021: 49%)
  • Professional Visualisation: 8% (2021: 7%)
  • Automotive: 1% (2021: 3%)
  • Other: 2% (2021: 5%).

 

Financials

  • Revenue USD 26,914B in 2021 (2021: 16,675B), representing a staggering 61.4% yearly growth rate. 
  • Gross profit improved from 62.3% to 64.9%. 
  • Net income increased by 125.1% from $4,332B in 2021 to $9,752B in 2022. 

Gaming revenue was up 61% from a year ago, mainly due to the rising popularity of gaming, esports, content creation and streaming, increase in remote work, and cryptocurrency mining. 

Data Center revenue was up 58%, primarily driven by cloud computing and AI workloads.

Nvidia also has a very healthy balance sheet and cash flow growth each year.  

 

Growth catalysts

Gaming: Increasing demand for high-performance GPUs for consumers and professionals. As you may already know, there is an enormous demand for PC gaming, eSports competitive gaming, game streaming, and console gaming.

Crypto mining increases the demand for Nvidia GPUs because most crypto mining requires high-performance GPUs that have higher hash rates.

Increasing demand for data center GPUs. Most data centres needs GPUs to accelerate workloads such as data analytics, cloud computing, cloud gaming, AI training and research, machine learning, deep learning, high-performance computing, Edge computing, networking and virtualization.

  

Risks

Competition with AMD

In the discrete GPU market, its currently a duopoly between Nvidia and AMD. Nvidia is the market leader in GPU with a market share of 81% compared with AMDs 19%.

Current global chip shortage: If the global chip shortage continues, Nvidias revenue growth would be impacted.

Volatility in the cryptocurrency market, including changes in the prices of cryptocurrencies or methods of verifying transactions, such as proof of work or proof of stake, can impact demand for products. 

 

Valuation

Long-term growth

CAGR (Compound Annual Growth Rate) is the average growth rate over a set period. Nvidia is growing revenues at a very solid rate:

  • Revenue CAGR: 10-years 21.02%, 5-years 31.25%, 1-year 61.4%
  • Net income CAGR: 10-years 32.5%, 5-years 42.3%, 1-year 125.1%

Macro-economic outlook

If you have a 10-year time horizon, few companies have a brighter future. AI, deep learning, gaming, self-driving cars, robots and virtual reality - if you envision a future where these technologies are ingrained in our everyday life, we can guarantee that many of them will be powered by Nvidia. 

 

***Disclaimer: Just a friendly reminder - This is not financial advice. Always do your own research before taking a position. Content is for informational and educational purposes only***


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