Here’s Why It’s The Right Time to Buy NVDA

A successful investor understands the importance of adding well-performing stocks to the portfolio at the right time. NVIDIA Corporation NVDA is one such technology stock that has been on a healthy growth trajectory of late. Shares of this California-based graphic chip behemoth have rallied nearly 5% since its reported solid third-quarter fiscal 2018 results.

Moreover, the stock has been clocking solid returns in the last year and has soared 158.4%, outperforming the industry’s gain of 60.3% over the same period.

The stock has an estimated long-term earnings growth rate of 11.2%. With solid prospects, this Zacks Rank #1 (Strong Buy) stock is an attractive pick at the moment.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stellar Performance in Q3

NVIDIA posted earnings of $1.33 per share on non-GAAP basis, up nearly 60.2% year over year. Non-GAAP earnings also beat the Zacks Consensus Estimate of 94 cents per share. The year-over-year rise in the bottom line mainly stemmed from significant revenue growth along with gross margin and operating margin expansion.

Revenues surged 31.5% year over year to $2.636 billion.  The figure also comfortably surpassed the Zacks Consensus Estimate of $2.364 billion as well as management’s projection of $2.35 billion (+/-2%). The year-over-year jump is primarily attributable to growth across all the platforms — the GPUs gaming platform, Professional Visualization, datacenter and Tegra automotive platforms. Further, NVIDIA continued to gain strength in the artificial intelligence (AI) space, which positively impacted the quarter’s revenues.

Raised Guidance

For fourth-quarter fiscal 2018, NVIDIA expects revenues of approximately $2.65 billion (+/-2%), which is much higher than the Zacks Consensus Estimate of $2.44 billion.

For fiscal 2018, the company continues to expect returning $1.25 billion to its shareholders in the form of cash dividends and share repurchases.

Estimates Northbound

Estimates for NVIDIA have moved up in the past seven days, reflecting the optimistic outlook of analysts. Earnings estimates for the current quarter have jumped 5.1% while that of next quarter moved up 3.5%.

The Zacks Consensus Estimate for revenues is $2.44 billion for current quarter, displaying 12.3% year-over-year growth. Revenues for fiscal 2018 are estimated to be $8.99 billion, reflecting 30% annual growth.

For the current quarter, the Zacks Consensus Estimate for earnings is pegged at $1.03, depicting year-over-year growth of 3.5% while that for fiscal 2018 of $3.66 displays a rise of 42.6%.

Positive Earnings Surprise History

NVIDIA has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 33.5%.

Growth Drivers

The company’s sustained focus on introducing fast and innovative products as well as agreements with leading PC game makers have been driving its Gaming GPU business. During the quarter, NVIDIA announced the launch of the new high end graphic card, GeForce GTX 1070 1070 Ti. Available from Nov 2, the card was released to take down AMD’s $400 Radeon Vega 56. We believe this will take the gaming experience to a new level. Hence, the launch of this product will enable NVIDIA to increase its customer base and help in garnering additional revenues.

NVIDIA also collaborated with Square Enix to unveil Final Fantasy XV Windows Edition for PC in Gamescom 2017, which is aimed at bringing an enhanced gaming experience to PCs. This deal is a positive for NVIDIA, as it will help the company gain market share among gaming content developers.  Moreover, it joined forces with Activision to bring Destiny 2 online game to the PC for the first time.

The company’s Volta-based V100 accelerator was the most notable launch of late. The Volta V100 GPU provides 10 times more deep learning power to the company’s year-old predecessor, Pascal generation GPUs. Recently, Alibaba, Baidu BIDU and Tencent announced that they are adopting NVIDIA Volta GPUs in their datacenters and cloud server, joining Amazon, Facebook, Alphabet’s GOOGL Google and Microsoft MSFT.

Demand for NVIDIA’s HGX AI supercomputer also remained high as more organizations are keen on building AI-enabled applications. The company stated that Huawei, Inspur and Lenovo will be using its Volta HGX architecture to build AI systems for datacenters. During the quarter, NVIDIA launched TensorRT programmable inference acceleration platform, thereby improving the performance and reducing the cost of AI inferencing. Notably, more than 1,200 companies are already using this inference platform, including Amazon, Microsoft, Facebook, Google, Alibaba, Baidu, Hi Vision and Tencent.

The company also unveiled a new AI supercomputer chip designed for self-driving cars called Pegasus at its GPU Technology Conference in Europe. This new technology helps to drive fully autonomous robotaxis which can handle the concept of Level 5 self-driving vehicles and uses NVIDIA’s DRIVE PX 2 platform, trained on deep neural networks. Per the company, the new system is capable of delivering 320 trillion operations per second of performance, which is more than 10 times compared with its predecessor.

To Conclude

We expect these factors to help the company sustain strong momentum and stay afloat amid difficult times. Consequently, we suggest that investors buy the stock for the time being.

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