NVIDIA (NASDAQ: NVDA) beat the broader market nicely in 2020 and made investors very profitable thanks to increasing interest in video games and the growing demand for data center equipment.
Such impressive gains may make you wonder if this strong-growing stock is still worth holding on to and if it can repeat its performance in 2021. to strengthen in the new year. Let’s see how.
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NVIDIA’s Biggest Business Will Get Better
The coronavirus pandemic could not rattle the NVIDIA sauce train because it has an increase in the demand for its graphics cards used in various applications including computer games and data centers.
For the first nine months of fiscal 2021 (ending October 25, 2020), NVIDIA’s revenue increased nearly 50% in the previous year to $ 11.67 billion, while net revenue increased almost 55% to $ 2.87 billion. This is an impressive achievement in a pandemic year, and there are two specific ways of growing that are due to it.
First, NVIDIA’s gaming business was in good shape throughout the year. Sales of graphics processing units (GPUs) have remained strong as people sitting at home during the health crisis invested in video game hardware to entertain themselves. It appears that a healthy demand for graphics card and the lack of components will result in a GPU shortage that is expected to last into the first quarter of 2021.
Image Source: Getty Images.
This means that NVIDIA’s gambling industry could benefit from the pent-up demand in 2021, especially if consumers find it difficult to place their cards on the company. NVIDIA’s Ampere-based RTX 30 series cards are a huge improvement over their predecessors, delivering a big leap in performance at attractive price points. It also made them an ideal choice for cryptocurrency miners who allegedly bought $ 175 million worth of cards in the previous quarter.
Not surprisingly, NVIDIA says that demand for the new cards has exceeded supply. The good part is that the company is filling the supply gap. The company apparently has a second production order at Samsung for its RTX 30 series GPUs as it wants to increase the availability of its new cards. Such a move should ideally help NVIDIA increase the sales of its cards, as there is a large installed base of gamers currently using older graphics cards, who may not be able to run the latest graphics-intensive games.
As such, NVIDIA’s gaming revenue could continue to climb in the new year. This will be good for the company, as it generated 48% of its total revenue from this segment last quarter.
Favorable conditions in the end market are also seen in the data center business that generated 40% of NVIDIA’s revenue last quarter. In fact, NVIDIA says that this is a huge demand for its A100 GPUs from customers in the data center, and it may take a few months before the disk maker can catch up.
This is again not surprising, as several big-name cloud players lined up to buy the A100 chips when it was launched. NVIDIA promised that the A100 could deliver significant performance gains while embracing artificial intelligence, machine learning and high performance in computing, and even brought a more powerful version of the card to the fore.
Tom’s Hardware estimates that the A100 GPU north could cost $ 15,000. This suggests that NVIDIA can save a lot of money once it improves the supply chain of data center GPUs.
What’s more, the market for data center GPUs has grown a lot. According to a third-party market research report, sales of GPUs that accelerate the workload of the data center could achieve a compound annual growth rate of 45.4% by 2025, which will generate $ 16.4 billion in revenue. NVIDIA claims to control most of the accelerator market for supercomputers – more than 90%. If this is indeed the case, data center revenue could increase significantly from the next 12-month figure of $ 5.77 billion in the coming years.
Investors should stick to the stock
NVIDIA dominates the markets in which it operates. Just like in the data center space, according to Jon Peddie Research, NVIDIA controls a large share of the discrete PC-GPU market with a share of 77% in the third quarter of 2020.
As a result, the company is well positioned to leverage the potential growth in the gambling and data center markets. Therefore, NVIDIA is expected to achieve impressive growth on the top and bottom line in the future, according to calculations by analysts released by Yahoo! Finances, which makes it a leading growth stock that investors in the new year should continue to hold on to (or even buy more of).