Ask people what their idea of a dynamic tech company looks like, and they probably wouldn’t name a nearly 30-year-old semiconductor manufacturer. But that’s exactly which company is lighting the world on fire with its gravity-defying run.
I’m talking about Nvidia Corp. NVDA, -3.46%. The company was founded in 1993 focusing mainly on graphics chips, and in the 2000s made a name for itself producing hardware for the Xbox and PlayStation. But these days, there’s a whole lot more going on at Nvidia than just video game chips.
With a roughly $750 billion valuation, the tech stock is valued at more than megabank JPMorgan Chase & Co. JPM, -0.08% and is one of the top 10 components in the benchmark S&P 500 Index SPX, -0.76%. That growth has happened in the blink of an eye, too, with shares rising roughly 10-fold since the end of 2018. The momentum hasn’t slowed, either, with shares roughly doubling in the past six months. As a result, the company’s price-to-earnings (P/E) ratio is over 100, about five times that of the S&P 500.
It’s tempting to wonder when the run will come crashing to a halt as the next disruptor comes along. But a closer look shows Nvidia is dominating a number of high-growth trends that could keep it moving higher for some time.
Omniverse and VR
Nvidia announced this week it is rolling out several products that will give developers tools to build virtual worlds as part of its Omniverse Enterprise platform.
Lest you think this is just about making a better Beat Saber, this isn’t just fun and games — virtual visits to job sites or 3D renderings of new products can help all manner of businesses thrive in an age where remote workforces are increasingly becoming the norm. There’s also the potential tie in to the massive effort under way at Meta Platforms Inc. FB, -2.12% (Facebook) to look beyond social media to a more immersive experience.
Grandview Research has estimated that the VR market was valued at just under $16 billion in 2020 but should grow at about 18% annually through 2028 — more than tripling in size over that period to over $59 billion. As one of the leading providers of both hardware and software in the space, investors may want to bet on Nvidia gobbling up the majority of that very lucrative pie.
While Nvidia’s roots are in creating next-generation graphics, the company’s innovative graphics chips also power artificial intelligence. That may sound obtuse, but the phenomenon known as “GPU acceleration” involves using a high-powered graphics processing unit take on some of the most time-consuming and data-intensive portions of a computing process.
Obviously, deep learning happens best — or only happens at all — when massive amounts of data are put through an algorithm. And similar to its omniverse offering, Nvidia has married hardware and software to offer effective artificial intelligence solutions — including an end-to-end robotics platform called Isaac that allows firms to input data, simulate and train an AI system, then deploy the technology in the real world with speed and flexibility.
You’ve probably heard that 90% of the world’s data was created in the last year or two. But unlike most tech stocks, Nvidia isn’t just charging you to store or access data — it’s charging ahead to find effective ways for companies to use that data via artificial intelligence and machine learning.
A specific example of AI that warrants its own entry on this list is the trend toward self-driving cars. Because it’s one thing to just crunch data, and a whole other ball of wax to use AI to keep a 4,000-pound vehicle from crashing into a pedestrian at 60 miles per hour.
The promise of self-driving cars will only be realized when the technology is safe, and that demands hundreds of precision sensors around a vehicle to detect everything from the lines on the road to a pedestrian crossing the street. Nvidia has the computing power side covered as well as the hardware side.
Consider that its Drive technology offerings include cameras, radar and ultrasonic sensors, along with processing chips and a “data center on wheels” to deal with all those inputs. If and when self-driving cars hit the roads en masse, each vehicle will need dozens of these pieces of hardware — and as in other areas, Nvidia is emerging is an early leader in this market.
This is a sticky subject for Nvidia, as the company has publicly moved to reduce the use of some graphic chips in the space by putting a cap on certain GPU functions used primarily by cryptocurrency miners. But it isn’t giving up on this segment by any stretch, including launching its CMP HX — short for crypto-mining processor — earlier this year.
Say whatever you will about cyptocurrency volatility or the likelihood of bitcoin BTCUSD, +0.21% or ether ETHUSD, +0.10% ever truly overtaking cold, hard cash. But the reality is that mining crypto is highly lucrative, and based on current trends could be taking off as we enter 2022.
Consider data from The Block, a digital assets news and research site. In October, miners made $1.72 billion in revenue by producing the various cryptocurrencies that are in favor right now. Last year that mining revenue total was barely more than $350 million, meaning a roughly five-fold increase over the last year.
When mining is this profitable, you can be sure some of those profits will get plowed back in to hardware.
Dividends and buybacks
What? I never said they all had to be high-tech catalysts. And the fact remains that while Nvidia’s stock market valuation has exploded in the last several years, its dividend and buyback actions have not kept step.
Adjusted for splits, Nvidia started paying dividends of 1.875 cents per quarter back in 2012 when it traded for $3 a share. While its stock price has increased 100-fold, the dividend stands at only 4 cents a quarter. Or looked at another way, in fiscal 2012 it recorded about $4 billion in revenue and operating income of just under $650 million. Fiscal 2021 should boast $25 billion in revenue and more than $4 billion in net income.
Now take buybacks. Beginning with its first repurchase program in 2004 through this summer, Nvidia spent about $7.08 billion buying back its stock. But as of Aug. 1, Nvidia was authorized to purchase up to $7.24 billion in common stock through the end of 2022, according to its last earnings report. That means it could buy more stock in the next year than it has bought in the entire life of being a public company.
These may not be as sexy as new product lines, but could still be significant drivers of value to Nvidia stockholders in the future.
Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the stocks mentioned in this article.