NVIDIA is a leading technology company known for its innovative graphics processing units (GPUs) and artificial intelligence (AI) solutions. With a market capitalization of over $1.216 trillion, NVIDIA is the world’s 6th most valuable company by market cap and one of the largest chip companies worldwide.
As a leader in the gaming industry, the company has shown phenomenal growth over the years. NVIDIA GPUs are popular amongst gamers as they provide high-performance graphics. Additionally, NVIDIA has increased its product range, adding networking solutions, game streaming services, and cloud-based visual and virtual computing software.
NVIDIA has an impressive annual return, attracting the interest of investors. Yet, some analysts warn that NVIDIA’s current valuation might be excessive, so anyone interested in buying it should review its financial performance first.
But is NVIDIA worth the risk? Read further to learn more about NVIDIA and whether it’s a good stock to buy.
NVIDIA Market Share
With a 71% global market share as of Q4 2022, Intel is the largest supplier in the PC GPU market. NVIDIA has a 17% global market share, while AMD has a share of 12%.
Even though Intel dominates the PC GPU industry, NVIDIA has succeeded in the healthcare and automotive industries with its gaming chips and AI experience.
- Medical imaging applications use NVIDIA’s GPUs, allowing faster and more accurate diagnoses.
- NVIDIA’s GPUs speed up DNA sequencing processes, advancing the understanding of diseases and genetic disorders via genomics research.
- Cloud-based visual and virtual computing systems have benefited from data-intensive industries such as financial services and scientific research.
- Providing advanced AI solutions has made NVIDIA a dominant force in the automobile sector. Due to their GPUs, autonomous driving is safer and more efficient.
Rising Global AI Server Shipments
According to a report from TrendForce, global AI server shipments are expected to increase by a whopping 40% in 2023. With this increase in demand, multiple industries can meet their growing need for powerful AI servers.
According to their analysis, NVIDIA’s GPUs are leading the way, capturing a large market share of about 60-70%. With over 20% of the market, NVIDIA faces fierce competition from ASIC chips made by Cloud Service Providers (CSPs).
NVIDIA’s success in maintaining its market dominance is due to three factors:
- CSPs from China and the U.S. compete for NVIDIA’s A100 and A800 models. By the second half of 2023, demand will gradually shift toward the more recent H100 and H800 models. The H100 and H800 sell for about 2-2.5 times more on average than the A100 and A800 models.
- DGX and HGX are NVIDIA’s own hardware solutions that make these machines more appealing. As a result, high-end GPUs like the A100 and H100 must be profitable. Because of NVIDIA’s strong market position, the H100’s pricing can differ by up to $5,000 depending on the volume of purchases made by the consumer.
- Chatbots and AI computations will impact several fields in the future. Due to this, there is a huge growth in demand for AI servers, especially cloud-based servers with 4–8 GPUs. NVIDIA is in a strong position to meet this demand and keep control of the market. The A100 and H100 are expected to be used in 50% more AI servers shipped yearly.
Financial Performance
Investors must consider the company’s financial performance when determining whether NVIDIA is a good stock to buy. NVIDIA’s financial success has been impressive in recent years, strengthening its position as a major player in the tech sector. In its 2023 annual financial earnings report, NVIDIA reported revenue of $28.56 billion.
In its Q1 2024 results, the company earned $1.09 per share on sales of $7.19 billion. Despite a 20% decline in earnings from the previous year, this exceeded Wall Street estimates, while sales decreased by 13%.
This data shows there were noticeable changes in the company’s various sectors. For example, data center sales saw a 14% rise, reaching $4.28 billion in Q1, reflecting the growing demand for NVIDIA’s products. In contrast, gaming chip sales experienced a 38% decline, falling to $2.24 billion.
Despite the fluctuations in earnings, analysts remain optimistic about NVIDIA’s future. In fiscal 2024, they expect a big increase in earnings per share of 138% combined with a sales increase of 61%. This prediction is very optimistic, given the 25% revenue loss from the previous year.
NVIDIA Stock Price
The company’s stock price performance is another essential factor when considering whether NVIDIA stock is a good buy.
NVIDIA went public with its initial public offering (IPO) on January 22, 1999, at $12 a share, offering 3.5 million shares. The company ended the trading day at $19.70 per share and raised $42 million. This also gave NVIDIA a market capitalization of $626.1 million at the time.
As of August 30, 2023, NVIDIA stock is trading at $492.64 per share. NVIDIA stock has increased since crashing in 2022, with an increase of 236% year to date. NVIDIA’s stock has also provided a return of over 163% from the beginning of 2023 to June 8, 2023.
Since going public, NVIDIA stock has split four times:
- 7/20/2021 4:1 stock split
- 9/11/2007 3:2 stock split
- 4/7/2006 2:1 stock split
- 9/12/2001 2:1 stock split
- 6/27/2000 2:1 stock split
NVIDIA has also taken the 10th spot on the list of the 30 Most Popular Stocks Among Hedge Funds, according to Insider Monkey. At the end of Q1 2023, NVIDIA was found in 132 hedge fund portfolios. That’s a significant increase from the 106 funds it was in the previous quarter.
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Dividends
While dividends reflect a company’s financial strength and are a great way to attract new investors, paying dividends is optional. It also does not indicate whether it’s a good stock to buy.
NVIDIA has been paying dividends to its shareholders every quarter since 2012. The last dividend payout of $0.04 per share was on June 30, 2023. The next dividend payout has yet to be announced, but it’s estimated to occur on September 29, 2023.
As of August 31, 2023, NVIDIA’s dividend yield (TTM) stands at 0.03%. This shows the annual dividend percentage relative to the current stock price.
According to the five-year average dividend yield, NVIDIA has a higher number of 0.11%. This average demonstrates the historical trend in dividend payments during the period.
However, NVIDIA is not typically considered a high dividend-yielding stock. The company focuses mainly on growth and reinvesting profits into the business rather than paying large portions of its earnings to shareholders through dividends.
Final Thoughts
While NVIDIA’s stock price performance seems positive, whether NVIDIA is a good stock to buy depends on the investor. As with any investment, there are many risks that you need to consider that can impact the stock price, such as market volatility and competition.
If you’re wondering whether NVIDIA’s stock is a good buy, research its financial earnings and stay current on its latest product developments before adding it to your portfolio. Also, be sure to consider your needs and goals as an investor.
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