Most stock choosers have one aim: to stomp the market. Since Jan. 2015, the S&P 500 brought an average of 13% each year, or 110% overall. That’s not so bad, but it is nothing compared to NVIDIA’s (NASDAQ:NVDA) 3,410% roi over the same time.
Given the company’s $438 billion cap, investors might believe it is too late to purchase this stock. But NVIDIA recently gave very strong Q1 results, reminding investors that it is still a great growth company. In fact, I believe NVIDIA will keep outperforming the market. And here’s why.
High-performance products and numbers
NVIDIA is the leading maker of graphics processing units (GPUs) and AI products. Its brand is now widely connected to top-performance computing, which has meant strong demand from data centers and gamers.
In 2020, the company created its new data center GPU: Ampere. This fresh architecture helps AI workloads by up to twentyfold compared to the previous generation. NVIDIA destroyed the competition with its recent MLPerf benchmarks, a series of tests designed to determine the performance of AI computing systems.
Last year, they also started offering their GeForce RTX GPUs in the gaming market. These chips, which also use the Ampere architecture, combine real-time ray tracing and AI to create very-realistic video games.
NVIDIA’s numbers also look fantastic. The company’s first quarter showed strong output, even beating Wall Street’s estimates across the board. Their revenue increased 84% to hit $5.7 billion, and earnings went higher by 106% to $3.03 per diluted share.
A great future
NVIDIA’s top spot across multiple industries allows the company to produce three times more revenue than its nearest competitor. In graphics and supercomputing, NVIDIA has more than 90% market share. And in autonomous vehicles, Navigant has said the NVIDIA DRIVE platform is a market leader.
Here’s why this is crucial: NVIDIA reports a total addressable market in data center computing at $100 billion by around 2024, and its total market in vehicles near $25 billion by 2025. As the obvious leader in both sectors, the company is perfectly stationed to capture the majority of that cash flow.
So, how large can NVIDIA be in five years? The stock sits around 23 times sales right now. If the company keeps growing revenue at 24% each year (as has been the case since 2018), the price could almost triple by 2026 without seeing a change to is price-to-sales ratio.
Author: Scott Dowdy