Recent Buy – NVDA – Buying on the way up!

Today after earnings I added to my position of my best performing stock NVDA, purchasing 37 more shares at $62.32 for $2,243.52.

About NVIDIA

NVIDIA is “dedicated to advancing visual computing.” (NVIDIA 10-K) They have two reporting segments – GPU and Tegra Processor – based on a single underlying graphical architecture,

GPU – GPU is comprised of GeForce for PC Gaming, Quadro for design professionals, Tesla, for deep learning, and GRID to provide NVIDIA graphics through the cloud and datacenters

Tegra Processor – Tegra processors are sold to OEM’s for devices where graphics and overall performance is of great importance, to enable their branded platforms DRIVE and SHIELD. DRIVE automotive computers provide supercomputing capabilities to make driving safer and more enjoyable. SHIELD is designed to harness the power of mobile-cloud to reolutionize gaming.

Qualitative Elements

NVDA is a stock that has been on a tear for the past year. It’s one that I started researching when it was at $19, and pulled the trigger in the 20’s, and have been buying on the way up. as it has surged 146% in the past year, and 63% in the past 6 months. I obviously only wish I had bought more when I did.

While NVDA pays a dividend, obviously no one buys this stock for the dividend, but for the growth potential of the company.

I first found out about NVIDIA many years ago, because as a hardcore PC gamer, I would buy their graphic cards, and to me they always had the best performance vs competitors like AMD.

But NVIDIA’s story to me isn’t about their PC gaming business, because if anything, that’s an industry that is in decline.

Rather their story is a bet on the future of technology.

They are powering innovation in some of the world’s fastest growing industries. Think:

  • Internet of Things (IoT)
  • Virtual reality
  • Deep Learning
  • Connected Cars
  • Artificial Intelligence

No doubt this is a momentum stock. But to me it’s a bet on the future of these technologies, which will all revolutionize the world we live in radically in very short order. The fact is that technology advancement is hyper-accelerating, and the next 5-10 years will look radically different than today. Think refrigerators that talk to you. Smart homes. Robotics. Vehicles that are connected with smart cities. And the rise of AI, which will be the biggest game changer of all – and radically transform the workplace and how we live.

Quantitative Elements

NVIDIA is not cheap, priced at 50x earnings, more than double it’s 5-year average of 22. It’s forward P/E is 38.66, which is ok given the growth potential you’re paying for.

NVIDIA posted earnings of 44 cents per share, up on a year-over-year basis, beating the consensus estimate of 37 cents.

Revenues increased 23.9% year over year to $1.42 billion, surpassing estimates of $1.35 bn. This growth was due to better-than-expected growth across all platforms – GPUs, gaming, visualization, datacenter, and Tegra (automotive) platforms. Tegra revenues increased 30% from a year ago at $166 million.

Their adjusted gross margins expanded 155 basis points from the year ago quarter to 57.8%. Gross profit came in at $826 million, up 27.3% from the year ago.

Cash, cash equivalents, and marketable securities were $4.8Bn up from $4.75 bn in the previous quarter. NVIDIA’s total debt was $1.43Bn.

Risks

As with any purchase, there are risks that could impact forward assumptions.

  • Competition from the likes of Intel INTC and QCOM remains a near-term headwind
  • Expectations for NVDA stock’s continued growth are high. Any misses could cause momentum investors to leave their positions, causing the stock price to crater.
  • Ability to continually innovate and achieve design wins

In short

I love my NVIDIA position and believe it is probably the best way to play the autonomous vehicle trend as well as deep learning, AI, and virtual reality. While NVIDIA has reached it’s all-time high, their innovative pipeline and strength in gaming and GPUs keep it well positioned. Adoption of autonomous vehicles could act as a catalyst going forward. This is a long term buy that still has a good deal of upside to come.

I know a lot of DGIs don’t care about stock price appreciation, but to me total return is ultimately what matters in the accumulation of long term wealth.

Based on a $0.46 dividend, this purchase will add $17.02 to my annual income.

Thanks for stopping by.

 

 

2 Comments

  1. FerdiS August 18, 2016
    • Greg Gee August 31, 2016

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