Nvidia (NVDA) chips power a future of self-driving cars and cloud gaming. Nvidia stock has pulled back from highs notched late last year, after surging higher on a new growth driver — the metaverse, an immersive, next-gen internet realm.
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The chip giant beat earnings and sales views for its latest quarter.
For those looking for top large-cap stocks to buy now, here’s a deep dive into NVDA stock.
NVDA Stock Basics
The fabless chipmaker pioneered graphics processing units, or GPUs, to make video games more realistic. It’s expanding in AI chips, used in supercomputers, data centers, drug development and driverless cars.
For example, it will supply the chip that acts as the “brain” for the Nio (NIO) ET7, which will be a highly autonomous electric vehicle when it arrives this quarter. And Nvidia already supplies Amazon (AMZN) Web Services with chips for data centers.
Nvidia’s GPUs act as accelerators for central processing units, or CPUs, made by other companies. In April, Nvidia unveiled its first CPU, called Grace, which uses chip designs from U.K.-based Arm for high-end computing. With its own CPU, Nvidia will offer a more complete system for data centers, directly challenging processor giants Intel (INTC) and Advanced Micro Devices (AMD).
Nvidia chips also are used for Bitcoin mining.
Nvidia is having a tough time closing out its $40 billion Arm takeover, which could slow its efforts to expand. Arm’s technology is central to smartphone chips and gaining more traction in enterprise servers.
Nvidia’s Omniverse: ‘Plumbing’ For Metaverses
Nvidia has made a big push into metaverse applications. Meta Platforms (FB) (formerly Facebook) and Microsoft (MSFT) see a big future in immersive virtual reality.
At Nvidia’s virtual GTC conference in November, Chief Executive Jensen Huang touted Nvidia Omniverse, a virtual world simulation and collaboration platform for 3D workflows. And the company announced Omniverse Avatar, a platform for generating interactive AI-based avatars.
On Jan. 4 at CES, Nvidia made its Omniverse software available for creators who use its graphics processors. The company also revealed a lower-priced GeForce RTX graphics processor to spur gamers to upgrade to ray-tracing technology.
According to Nvidia, the Omniverse platform provides the “plumbing” on which metaverses can be built. Lockheed Martin (LMT) is testing Nvidia’s Omniverse to simulate and manage wildfires. Other companies are using it to create “digital twins” of buildings and factories.
Nvidia’s chips and computing power are key to the emerging metaverse. Many companies will build the metaverse, analysts say, but most of the revenues will be generated by the companies that provide the infrastructure — such as NVDA.
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Nvidia Earnings And Fundamental Analysis
In the third quarter, Nvidia earnings jumped 61% while sales surged 50%. Gaming chip revenue soared 42%. Data-center chip sales jumped 55%. Nvidia purchased Mellanox last year. In addition, Nvidia guided revenue higher for the current Q4.
The chip giant easily beat Q3 earnings and sales views.
Nvidia CEO Jensen Huang expects the ongoing chip shortage to continue through 2022. Analysts expect EPS to jump 73% in fiscal 2022 as revenue increases 59%, according to FactSet. Both earnings and revenue are seen growing further in 2023, though at a slower pace.
Nvidia’s EPS Rating is a superior 97 and its SMR Rating is an A, on a scale of A to a worst E. The EPS rating compares a company’s earnings growth to other stocks. Its SMR Rating gauges sales growth, profit margins and return on equity.
Out of 43 analysts covering NVDA stock, 35 rate it a buy, five have a hold and three have a sell, according to FactSet.
The pandemic fueled demand for Nvidia chips in home computing, video games and data centers. Now chips are in such hot demand that it’s led to a global shortage.
The chip shortage hit automakers especially hard. Nvidia makes chips for car infotainment and autonomous driving systems.
As cloud gaming grows around the world, Nvidia’s new cloud gaming service could become a growth driver. Rival services include Google Stadia, Microsoft Xbox Network and Amazon Luna.
Nvidia designs dedicated chips for mining cryptocurrencies. Its cryptocurrency mining processors, or CMPs, launched in February.
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Nvidia Stock Technical Analysis
Nvidia earns an unbeatable IBD Composite Rating of 99. In other words, it has outperformed 99% of all other stocks in terms of combined technical and fundamental metrics. In fact, NVDA belongs to the IBD Leaderboard, a list of stocks with the most potential for big gains. It also belongs to the IBD 50, Big Cap 20 and Sector Leaders lists.
Investors generally should focus on stocks with Comp Ratings of 90 or even 95 and above.
Nvidia stock is trading below a 346.57 buy point in a consolidation going back to late November. But after the market’s broad two-day selloff, NVDA is well below that entry and also back below its 10-week line. If NVDA stock recovers back above that key level of support, then goes on to break out, the buy range would go to 363.90. The new consolidation follows a successful October breakout that triggered the eight-week hold rule.
The relative strength line for NVDA stock is lagging, IBD MarketSmith charts show, tracking the stock’s pullback since November. The strength indicator has rallied nicely for much of the past three years. A rising RS line shows that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
The Accumulation/Distribution Rating is a D+, a sign of considerable selling by institutions over the past 13 weeks. Still, the chip stock boasts strong institutional backing: As of September, 4,802 funds owned NVDA shares. In fact, Nvidia shows eight quarters of rising fund ownership, the IBD Stock Checkup tool shows.
Nvidia stock owns an RS Rating of 98, meaning it has outperformed 98% of all stocks over the past year. The iShares PHLX Semiconductor ETF (SOXX) holds both Nvidia and AMD stock.
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Rival Chip Stocks
Nvidia and AMD are established leaders in the semiconductor industry.
Among top chip stocks, Nvidia helps to lead IBD’s Electronics-Semiconductor Fabless industry group. Fabless companies contract with foundries to make the chips they design. Other chip companies own their fabrication plants.
Besides NVDA, fabless chip stocks include Qualcomm, Broadcom (AVGO) and Monolithic Power Systems (MPWR). The fabless group has moved up to No. 1 out of 197 industry groups.
For the best returns, investors should focus on companies that are leading the market and their own industry group.
Is Nvidia Stock A Buy Now?
On a fundamental level, Nvidia earnings and sales are rising again after sharp declines. It’s expanding in emerging growth areas, such as data centers, automated cars and cloud gaming. The adoption of metaverses and cryptocurrencies could further stoke demand for Nvidia chips.
Meanwhile, new gaming chips underscore Nvidia’s continued dominance in core markets.
NVDA is a top stock in a leading industry group. But as the global chip shortage lingers, it could take months for the supply of Nvidia GPUs to catch up with demand.
The chip stock is below a 346.57 buy point, following a pullback from November highs. But shares have undercut their 10-week line, and the stock’s RS line is falling.
Bottom line: Nvidia stock is not a buy. As a leading chip stock with exposure to top end markets in data centers and gaming, NVDA is always one to watch.
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