If there is one sector that was the biggest beneficiary of the Covid-19 pandemic it must be the Chips industry where the overall sector has seen almost 70% increase in the index in last year. With the huge demand for chips and the shortfall of supply the sector has benefited from the increasing trend of pricing. In this Oligopoly market where there are 4-5 key players, there seem to be multiple winners in this sector. One company that is going to benefit is NVIDIA (NASDAQ:NVDA), which produces chips that powers self-driving cars and cloud gaming.
The Santa Clara based, NVIDIA pioneered Graphics processing units or GPUs, used to make video games more realistic has been the mainstay of many computing intensive tasks such as machine learning and artificial intelligence. With some of the key customers like Amazon for AWS and VMWare the demand for NVIDIA’s chips are going to continue for a foreseeable future. Also, the increased demand for AI solutions in the enterprise is going to have a sustainable demand for the NVDA produced GPUs in future.
Key Metrics for NVIDIA
NVIDIA saw a quarterly revenue growth (year over year) of around 57%. Earnings has also grown by approximately 49% year over year. The current ratio of 3.92 makes the company sustainable even in unforeseen circumstances and it has a strong short term financial position. Even though the P/E is at around 79 the positive revenue growth is going to indicate improved P/E going forward. The growth for NVDA is forecasted to be around 51% in 2021 and an astounding 82% in 2022. The company is expected to grow at around 22% for next 5 years.
NVDA stock has almost tripled from March 2020 lows which is primarily based on strong quarterly earnings and positive sentiment for the tech stocks and more specifically the chips stocks. With a massive market cap of more than 340 billion and Profit margin of 25% the stock is well positioned for the next up move.
Even though the stock had seen a huge rally in 2020, the upside potential is still there as the continuous improvement of EPS and the increasing demand of chips and GPUs is going to help NVDA reach even greater heights.