Nvidia (NVDA) was founded in 1993 by three visionaries – Jensen Huang, Chris Malachowsky, and Curtis Priem. Though personal computers were still a novelty, Huang, Malachowsky, and Priem knew that before long, the machines would be central to the entertainment industry. They predicted that gaming and multimedia would eventually rely almost exclusively on PCs, and they wanted to be part of the global shift to digital entertainment.
The first Nvidia PCI card came out in 1995, sold under the name Diamond Edge 3D. That same year, gaming leader Sega started using Nvidia technology for the 3D game Virtual Fighter. As it turned out, the market was hungry for high-quality 3D graphics, and over the next few years, Nvidia formed partnerships with major players like Microsoft (MSFT).
The biggest advance came in 1999, when Nvidia invented the Graphics Processing Unit (GPU). The company defined GPU as “a single-chip processor with integrated transform, lighting, triangle setup/clipping, and rendering engines that is capable of processing a minimum of ten million polygons per second.” It is worth noting that today, GPUs process seven billion polygons per second.
The Ge Force 256 was Nvidia’s first GPU, and it changed the gaming industry forever. Meanwhile, the company also launched the Quadro GPU – technology for professionals designing new products. This type of visualization rapidly became the industry standard, further demonstrating Nvidia’s impact on the integration of technology with basic functions across industries.
That same year, Nvidia went public, with shares starting at $12. Since 1999, the stock has gained approximately 55,614 percent, and many analysts believe it will continue to grow in value. Is it too late to buy Nvidia stock, or is Nvidia stock still a buy?
What Makes Nvidia Special?
For now, the graphics processing unit (GPU) market is divided between two companies: Nvidia and Advanced Micro Devices (AMD).
However, Nvidia controls an overwhelming share of GPU sales. As of the second quarter of 2021, Nvidia held 83 percent of the GPU market, while runner-up AMD had just 17 percent.
Perhaps more impressive, that 83 percent represents a two percent increase over the first quarter of 2021 and a three percent increase over the second quarter of 2020. In the first quarter of 2020, AMD had 31 percent of the total market share, so Nvidia is steadily gaining ground.
What makes Nvidia special is the sheer power and performance of its GPUs. Though AMD has a solid product, it simply can’t measure up to Nvidia.
Last year, Nvidia released its Ampere architecture-based RTX 30 series cards, which added performance to its already strong capability. Better still, Nvidia chose not to push prices up commensurate with the increased performance, so the cards are in high demand.
Because of Nvidia’s enormous scale, it has an edge in securing its supply chain. That’s especially important now, as semiconductor manufacturers can’t keep up with demand. While the supply of Nvidia GPUs doesn’t match demand, the company has been more successful at getting cards into the hands of consumers than AMD.
In fact, one report indicated that Nvidia’s RTX 3090 GPU outsold AMD’s entire RX 6000 series. That directly contributed to Nvidia’s increase in market share.
Why Did Nvidia Go Up?
Nvidia’s second-quarter 2021 results exceeded expectations, prompting management to increase guidance for the third quarter and full year. In turn, analysts boosted their forecasts, and most agree that Nvidia is a strong buy.
Key second-quarter results include:
- $6.51 billion in revenue – a year-over-year increase of 68 percent
- $2.44 billion in GAAP operating income – a year-over-year increase of 275 percent
- $2.37 billion in GAAP net income – a year-over-year increase of 282 percent
- $2.62 billion in adjusted net income – a year-over-year increase of 92 percent
- GAAP earnings per share of $0.94 – a year-over-year increase of 276 percent
- Adjusted earnings per share of $1.04 – a year-over-year increase of 89 percent
Analysts expected revenue of $6.33 billion and adjusted earnings per share of $1.02 for the quarter, and the company’s success in overshooting that goal gave investors reason to push the stock price up.
Can Nvidia Stock Keep Going?
Every sign points to Nvidia’s continued growth. Its massive market share promises to keep sales high, as the vast majority of Nvidia’s current gaming GPU users have not yet upgraded to the more powerful Ampere chips.
Perhaps more importantly, Nvidia has a more advanced product line coming to market in 2022. When it does, upgrades are all but assured.
In 2020, the graphics card market generated revenue of roughly $23 billion. That is expected to increase to $54 billion by 2025. With Nvidia leading the way in market share and sales, stock prices are expected to deliver strong returns for shareholders.
Nvidia CEO Is A Rare Visionary
Nvidia’s founder, Jensen Huang, remains the company’s CEO and President today. When he launched Nvidia in 1993, he was primarily focused on 3D graphics. Through his vision, Nvidia created the hardware necessary to grow gaming from a small, specialized niche into the largest entertainment industry in the world.
While Nvidia still drives innovation in gaming, the company has expanded into other transformative technologies. Nvidia is a leader in Artificial Intelligence (AI) as a result of expertise in deep machine learning. That has allowed the company to create and inspire technologies capable of AI-managed computing.
Some of the most exciting applications include advanced robotics and autonomous vehicles – machines that can see and understand their environment.
In an extraordinary display of Nvidia’s technological capabilities, Huang recently announced that a keynote presentation he gave in April included seamless integration of computer animation. Even the most careful observers were unable to determine where the real Huang stopped, and the animation started.
In a blog post, Nvidia explained:
To create a virtual Jensen, teams did a full face and body scan to create a 3D model, then trained an AI to mimic his gestures and expressions and applied some AI magic to make his clone realistic.
Who Is Nvidia’s Competition?
Being the best has a long list of advantages, but there is one significant risk that market leaders face: competition. Companies that command market share the way Nvidia does become the ones to beat, and major chipmakers have Nvidia in its crosshairs.
For the moment, Intel (INTC) appears to be Nvidia’s biggest threat. In recent weeks, Intel CEO Pat Gelsinger has made a number of remarks that suggest the Intel Arc graphics cards will win in a head-to-head competition with Nvidia. In one interview, Gelsinger said:
We have our GPU architecture where we are gonna start being in a position to really put pressure on Nvidia for the first time ever.
The cards are expected to become available in the first quarter of 2022. Of course, whether they actually outperform Nvidia’s remains to be seen.
With that said, there is a second risk that has and will continue to impact all of the major chipmakers and designers, including Nvidia, AMD, and Intel. Often referred to as The Great GPU Shortage, the issue is simply this: there aren’t nearly enough cards to meet demand, and consumers are frustrated.
The COVID-19 pandemic bears some responsibility for the shortage of chips. Demand increased significantly when large portions of the population transitioned to working and schooling from home. Over the course of 2020, the PC market saw 13.1 percent growth. That is the largest increase since 2010’s 13.7 percent.
Semiconductor companies, who are responsible for manufacturing cards, have manufacturing resources scheduled months – even years – in advance. There are no contingency plans for a sudden, unexpected rise in demand, and it didn’t help that the US government imposed restrictions on the largest semiconductor company in China.
Meanwhile, cryptocurrency mining has exploded, and miners want the very same cards that gamers use to maximize mining capabilities. Despite a variety of attempts to direct available supply to the gaming market, Nvidia failed to curtail the use of its product for that purpose. AMD didn’t even try. For the moment, it seems that the GPU shortage is all but certain to last through 2021, and it could very well stretch into 2022.
Is It Too Late To Buy Nvidia?
So, bottom line, is it too late to buy Nvidia stock? Absolutely not. It’s true that the company may not gain much more in the way of market share for GPUs, but that won’t stop Nvidia’s growth.
Furthermore, GPUs for gaming aren’t the only area in which Nvidia has specialized expertise. Nvidia’s exploration of Artificial Intelligence and related applications like autonomous vehicles is already defining the field. That area is in its infancy, which leaves plenty of room for Nvidia to grow. That makes Nvidia stock a buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.