Forget the stock split, 3 reasons NVIDIA could continue to climb in 2021
NVIDIA (NASDAQ: NVDA) started his year on a high note. In the first quarter of fiscal 2021 (the three months ended May 2, 2021), revenue increased 84% year-over-year to $ 5.66 billion, and adjusted profit per share rose 106%. Ahead of the quarterly update, the semiconductor designer announced a 4 to 1 stock split. While stock splits don’t have a significant impact on a company’s valuation, investors have set the news optimistic. Shares are now up 175.8% since the start of 2020.
Fractional stock, there is reason to believe that NVIDIA’s race is not over. The demand for chips is very high today, and the company is a leader on several high growth technology fronts. Let’s take a look at three reasons why this stock could continue its upward movement in 2021.
Image source: Getty Images.
1. New gaming GPU upgrades are just getting started
NVIDIA got its start with high-end video game graphics, and the industry remains the company’s biggest market. Game sales totaled $ 2.76 billion in the first quarter, up 106% year-over-year. The surge is due to the RTX 30 series GPUs released late last year. These advanced chips come standard with laser tracing and AI-enhanced graphics capabilities to help gamers get the most out of their gaming experience.
With such a boom in video game sales, it might look like this leading NVIDIA segment is headed for a downturn. That hour has not yet arrived. The hardware upgrade cycle has only just begun. NVIDIA recently announced that the first batch of laptops with RTX GPUs will be released this summer, making its new chips available to tens of millions of additional gamers around the world. And to better meet the demand of the video game market, NVIDIA has built restrictions into the RTX 30 series to prevent these graphics processors from going to cryptocurrency mining outfits (the new CMP chips tailored for the crypto market have been released and are expected to generate $ 400 million in sales in the next quarter).
NVIDIA said it expects second-quarter revenue of around $ 6.3 billion, up 63% from a year ago midway through. While cryptocurrency chips contribute to this scorching pace of growth, the gaming and data center markets account for the lion’s share of the expansion.
New laptops with NVIDIA RTX 30 chips are coming soon. Image source: NVIDIA.
2. Complex data centers need new technological hardware
Speaking of data centers, this quickly became NVIDIA’s second vertical. First-quarter sales totaled $ 2.05 billion, up a more than respectable 79% year-over-year.
Data centers operate behind the scenes, but are computer units of critical importance in today’s world. They operate the Internet, mobile networks, the myriad of software services that reside and reside there, and coordinate real-world activities such as managing postal services and healthcare information. And in an increasingly sophisticated digital world, better hardware that can coordinate all of this new data is needed. Many companies are adding GPUs to their data center designs as compute accelerators, or replacing old processors (central processing units) altogether with faster, more energy-efficient GPUs. It is a space traditionally dominated by Intel (NASDAQ: INTC), but NVIDIA is targeting the chip giant’s haymaker. Last year it unveiled a new data processing unit (DPU) and in early 2021 it announced a processor called Grace designed to work with its GPUs and designed from the ground up for center-stage applications. modern data such as AI.
Like its gaming business, data centers are in the early stages of upgrading. CFO Colette Kress said during the call for results that “every industry is becoming a technology industry”. Growth opportunities abound for NVIDIA, in particular cloud-based and AI-based services as businesses unlock new capabilities and become more efficient in their operations using new chip technology.
3. NVIDIA is no longer just a computer hardware company
NVIDIA of course makes money from the sale of its semiconductors. License revenue from the sale of chip designs to get a big boost Acquisition of ARM Holdings (which Kress says is still on track for completion in early 2022), but there’s a lot more to NVIDIA’s business model these days.
Recurring cloud-based software as a service (SaaS) revenue is a promising front for this chip company. Its automotive industry platform is a prime example. Automotive revenue was flat year-over-year in the first quarter at $ 154 million as NVIDIA continued to release undercover vehicle infotainment equipment. But its Drive autonomous vehicle platform covers not only hardware, but software services as well, helping automakers and autonomous vehicle researchers advance autonomous driving and safety capabilities.
Another example is Omniverse, a new collaborative software platform for designers and creators of all kinds. Omniverse has been in open beta but will have a commercial launch this summer for individual users and businesses. Kress said there have been more than 17,000 open beta downloads so far, indicating strong demand for this SaaS-based business line at short notice.
Selling software will be a longer term development for NVIDIA, but it nonetheless represents an exciting new outlet for this tech giant that pairs well with its leadership in GPUs. Innovation is in full swing at NVIDIA right now, and stocks could continue their upward momentum through the second half of 2021, with growth continuing at a rapid pace.
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Nicolas rossolillo and its customers own shares in NVIDIA. The Motley Fool owns stocks and recommends NVIDIA. The Motley Fool recommends Intel and recommends the following options: long January 2023 $ 57.50 calls on Intel and short January 2023 $ 57.50 puts on Intel. The Motley Fool has a disclosure policy.
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