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Last week, Jensen Huang led GPU major NVIDIA Corporation (NASDAQ:NVDA) reported its fiscal 2018 third-quarter earnings crushing analyst estimates once again. NVIDIA delivered a massive beat on both top line and bottom line numbers even surpassing the high end of the analyst estimates. The Santa Clara, California based company posted an EPS of $1.33 per share on a revenue of $2.64 billion against analyst expectations of Non-GAAP earnings of 94 cents per share and $2.36 billion in revenue. The string of blockbuster earnings has led to a strong rally in NVDA stock, in fact, the stock has doubled in the year-to-day period. This brings us to the question, is NVIDIA stock still a good buy near its all-time highs? Can NVDA stock continue to jump higher from here?
Datacenter segment set to drive future top line growth.
The GPU maker once again gave a strong guidance for Q4 with revenues to come in at $2.65 billion plus or minus 2%. This translates into 22.1 % YoY growth at the midpoint which is comparatively lower than growth rate seen in the last four quarters. However, there is a good possibility that NVIDIA can continue tomaintain its strong top-line growth in the coming quarters. This could be driven by its datacenter segment which saw its revenues climb to $501 million in Q3, up 109% YoY. The shift to Artificial Intelligence could propel massive top-line growth for the semiconductor company. IDC estimates that worldwide spending on AI hardware and software is set to reach $57.6 billion in 2021 from $12 billion in 2017. Out of this spending, a major chunk is likely to go into data centers. And, IDC further forecasts that by 2020 one-fourth of the datacenter capacity will be devoted to AI-related computations. With NVIDIA leading the AI space in data centers, the revenue growth has just got started.
In the earnings call too, NVIDIA CEO,Jensen Huang suggested the datacenter growth is just getting started when asked by Goldman Sachs analyst Toshiya Hari on datacenter outlook. NVIDIA had announced that Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU) and Tencent will adopt its next-generation Volta GPUs for accelerating AI across the enterprise and consumer applications. Major server computer makers are also set to join the fray to adopt next-gen Volta GPUs. Jensen Huang on the call said “this ramp is just the first part of supporting the build-out of GPU-accelerated service from our company for data centers all over the world as well as cloud service providers all over the world.And so I think the — we’ve been steadfast with the excitement of accelerated computing for data centers. And I think this is just the beginning of it all.”
NVIDIA a good bet on the autonomous driving market.
NVIDIA’s autosegment posted just $144 million in revenue for Q3, forming a minor portion of the total revenues. However, this could change in the future in a big way with the company focussing on autonomous driving. In the earnings call,NVIDIA CEO stated that “we’ve really, really reduced our emphasis on infotainment even though that’s the primary part of our revenues so that we could take, literally, hundreds of engineers and including the processors that we’re building now, a couple of 2,000, 3,000 engineers, working on our autonomous machine and artificial intelligence platform for this marketplace to take advantage of the position we have and to go after this amazing revolution that’s about to happen.” NVIDIADRIVE PX platform has over 200 companies working on it, with it presently leading the automotive hardware space. A Seeking Alpha author hinted at $300 price target for NVIDIA stock going by the potential of the company’s autonomous segment only which according to his estimates could generate $10 billion in revenues by 2020. Such is the potential of the auto segment.
Bottom line.
NVIDIA stock presently trades at 46 times the forward earnings, which might be little expensive for some.However, we must also take NVIDIA’s rapid growth and massive growth opportunities in the AI and autonomous driving space. NVIDIA stock still remains a good long-term buy. Even the lone bear analystBMO Capital’s Ambrish Srivastava accepted in a note to clients that hegot it wrong with his bearish call. He raised his price target for Nvidia shares to $200 from $135 and said: “NVIDIA has done a very good job in capitalizing on the demand for AI/ML, and primarily on the training side, where the company really has no competition.” Given the AI and autonomous driving opportunities, NVIDIA revenues will keep growing at a steady pace. It would be best if investors make use of any pullback to buy into NVIDIA stock.
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