NVIDIA Corporation (NASDAQ: NVDA) is an American technology company that designs graphics processing units (GPU’s) for gaming and professional markets, as well as systems on chip units for the mobile computing and automotive market. In 1999, NVIDIA redefined modern computer graphics and revolutionised gaming technology as we know it today through their invention of the GPU. They serve multi-purposes from gaming to cryptocurrency mining and more. As such, their stock has received lots of attention and growth in recent years, primarily fueled by cryptocurrency boom. In 2017, their stock price rose from $103.10 in early January 2017 and peaked at $281.02 in August 2018. The Price at the time of writing is at $163.43, a steep fall in a very short period of time.
(Source: Yahoo Finance)
Much of its recent stock performance was attributed directly to the falling cryptocurrency landscape, and how that would ultimately affect the company’s earnings. In their most recent Q3 FY 2019 earnings report, management had acknowledged that cryptocurrency demand was absent during Q3. NVIDIA reported excess inventory of GPU chips during the previous quarter because of this, and this is in part why they failed to meet analyst’s revenue estimates by $60 million (analysts expected $3.24 billion in revenue). As a result, the stock tumbled in after-hours trading on the release of their report, falling almost 17% in the trading session.
However, Q3’s revenue of $3.18 billion is still +21% year-over-year. Gaming revenue of $1.3 billion was down 2% quarter-on-quarter, but still up 13% year-over-year. This shows demand from the PC gaming community for NVIDIA’s products is still present and strong, despite the lack of demand from cryptocurrency miners.
Given the circumstances and its recent drop, we think NVIDIA is well positioned for growth in the future. With big shopping events such as Black Friday, Cyber Monday and Christmas, NVIDIA should have no problems selling their excess GPU chip inventory. Gamers know that a brand-new NVIDIA GeForce card is one of the best computer graphics cards in the market, and growing demand for online gaming can easily offset cryptocurrency-mining’s decline.
The recent release of GeForce RTX Pascal GPU products is resulting in NVIDIA again dominating the best-selling computer graphics cards in Amazon’s online store. Data from Amazon shows that the top 8 best-sellers are all using NVIDIA GPU chips. The most recent GeForce RTX 2070 and RTX 2080 products are very popular on Amazon, and retail for over $550.
New popular games, such as Red Dead Redemption 2 and Fallout 76 demand players to have system specific requirements for effective game play, and this will compel gamers to buy new GeForce cards. Red Dead Redemption 2 launched in October 2018, and sold over 17 million copies within the first 5 days of release. Many of those who bought this game will find out they need at least a 2GB GeForce GTX 1070 to run the game decently. With strong demand for these types of games, NVIDIA will benefit from the growth. The ever-increasing system requirements of new PC games is a reliable revenue stream for NVIDIA. The majority of gamers who require strong performance systems will always choose NVIDIA’s brand over other competitors as they are regarded as the best in their industry.
Fellow market competitor Advanced Micro Devices (AMD) took some market share in add-in-boards (discrete video cards for PC’s and Laptops). However, NVIDIA still holds more than 63% market share in this space. Over $3 billion worth of add-in-boards are shipped out per quarter and NVIDIA has more than a 60% share of the pie. A majority of gamers prefer NVIDIA over AMD products and this is why gaming is still NVIDIA’s largest revenue/income generator.
Another tailwind for the gaming segment is Nintendo’s latest hit Switch hybrid console. The Switch was estimated to be selling 3.19 million units per quarter since its launch in March 2017. The upcoming shopping season is expected boost this average to more than 6 million.
NVIDIA doesn’t need to depend on cryptocurrency mining to fuel its growth. The demand from PC gamers alone is enough to drive double-digit growth in sales for their products. With the online gaming community growing, and the ever-increasing system requirements of new PC games, NVIDIA stands to benefit as they have a well-established, trusted brand and are the best in the market at what they do.
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