NVIDIA (NASDAQ: NVDA) has beaten the wider market nicely in 2020, and has provided great gains to investors thanks to growing interest in video games and the growing demand for data center equipment.
Such impressive gains may make you wonder if this high-flying stock is still worth holding on to, and if it can repeat the results in 2021. The short answer to these questions is yes, as the catalysts driving NVIDIA’s growth in 2020 are ready to strengthen in the new year. Let’s see how.
7;s largest business will be better
The coronavirus pandemic could not rattle the NVIDIA sleeper train, as it saw an increasing demand for the graphics cards used in several applications, including PC games and data centers.
During the first nine months of the 2021 fiscal year (which ended October 25, 2020), NVIDIA’s revenue increased nearly 50% from the previous year to $ 11.67 billion, while net revenue jumped nearly 55% to $ 2.87 billion. This is an impressive performance in a pandemic year, and there are two specific growth drivers to credit it.
First, NVIDIA’s gaming business has been in good shape throughout the year. Sales of graphics processor units (GPUs) have remained strong as people stuck at home during the health crisis have invested in video game hardware to stay entertained. As it turns out, healthy demand for graphics cards and lack of components has created GPU shortages that are expected to last in the first quarter of 2021.
This means that NVIDIA’s gaming business can benefit from pent-up demand in 2021, especially given that consumers find it difficult to get their hands on the company’s recently launched cards. NVIDIA’s Ampere-based RTX 30 series cards are a huge improvement over their predecessors, giving a big jump in performance to attractive price points. This has also made them an ideal choice for cryptocurrency workers who reportedly bought $ 175 million in cards last quarter.
Not surprisingly, NVIDIA says that demand for the new cards has exceeded supply. The good part is that the company is working to fill the supply gap. The company has reportedly placed a new production order with Samsung for the RTX 30 series GPUs, as it seems to increase the availability of the new cards. Such a move should ideally help NVIDIA increase card sales, as there is a huge installed base of gamers currently using older graphics cards that may not be able to run the latest graphics-intensive games.
As such, NVIDIA’s gaming revenue may continue to climb higher in the new year. This will bode well for the company as it received 48% of the total turnover from this segment last year.
Favorable end-market conditions are also seen in the data center business, which produced 40% of NVIDIA’s turnover last year. In fact, NVIDIA says that there is great demand for the A100 GPUs from data center customers, and it may take a few months before the chipmaker manages to catch up.
Again, this is not surprising as several big name players had lined up to buy the A100 chips when it was launched. NVIDIA had promised that the A100 could deliver significant performance gains while tackling artificial intelligence, machine learning and high-performance computing volumes, and even brought out a more powerful version of the card.
Tom’s Hardware estimates that the A100 GPU could cost upwards of $ 15,000. This indicates that NVIDIA can make a lot of money when it manages to improve the supply chain of data center GPUs.
In addition, the market for data center GPUs has a lot of growth to offer. According to a third-party market research report, sales of GPUs that accelerate the data center’s workload could lead to a compound annual growth rate of 45.4% through 2025, and hit $ 16.4 billion in revenue. NVIDIA claims that it controls a majority of the supercomputing accelerator market – more than 90%. If that is the case, data center revenue could increase significantly from the subsequent 12-month figure of $ 5.77 billion over the next few years.
Investors should stick to the stock
NVIDIA dominates the markets in which it operates. Just as in the data center area, NVIDIA controls a large share of the discrete PC GPU market with a share of 77% in the third quarter of 2020, according to Jon Peddie Research.
As a result, the company is well positioned to take advantage of the potential growth in the gaming and data center markets. That’s why NVIDIA is expected to clock impressive top- and bottom-line growth in the future, according to analysts’ estimates compiled by Yahoo! Finance, making it a top growth action that investors should continue to hold on to (or even buy more of) in the new year.