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NVIDIA (NVDA) Is One of the Best Tech Stocks: Here's Why


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Technology has remained one of the favorite sectors among investors due to its dynamic nature. The field is expected to accelerate faster than ever before. Therefore, if you invest right, you can make a good profit. Tech companies will continue to transform our world with each passing year. So, if you don’t want to be left behind, make sure you’re investing in quality tech stocks.

Below we have evaluated one such tech company that has demonstrated remarkable share price performances so far. The company has raked in high returns for investors till now, and has the potential to keep exceeding expectations in the days ahead.

NVIDIA Corporation (NVDA - Analyst Report)

Widely known for its video gaming chips, NVIDIA has pioneered the art and science of visual computing. With a singular focus on this field, the company offers specialized platforms for the gaming, automotive, data center and professional visualization markets. Its products, services and software deliver amazing experiences in virtual reality, artificial intelligence and autonomous cars.

The stock has been clocking solid returns since the beginning of 2016 and has gained over 100% year to date. The robust performance is mainly because of the company’s phenomenal results in back-to-back quarters. This has boosted investor confidence in the stock substantially as many realized that the company is much larger than simply GPUs.

In the second quarter, the company posted earnings of 44 cents, much better than our estimate of 37 cents. This followed another massive beat by the company — 18.9% in the previous quarter — indicating that this stock is on fire.

NVIDIA’s foray into the autonomous vehicles and other automotive electronics space has been driving this stock higher since mid-2015. It should be noted that during the last reported quarterly results, the company witnessed a 68% year over year jump in automotive segment revenues, mainly driven by premium infotainment and digital cockpit features in mainstream cars.

Its plan to unveil new technology for self-driving cars is also encouraging. The evolution of smart cars that can "see" for us, alert us to danger and even brake the car when we're not paying attention is just the beginning of this innovative venture.

Notably, the graphic chip behemoth unveiled a new AI supercomputer chip designed for self-driving cars, called Xavier, at its GPU Technology Conference (GTC) in Amsterdam yesterday. Per the company, the processor is capable of delivering 20 trillion operations per second (TOPS) of performance, while consuming just 20 watts of power.

Apart from this, NVIDIA has entered into a partnership with TomTom – a Dutch mapping and navigation group, to develop AI in order to create a cloud-to-car mapping system for self-driving cars.

The company’s current Drive PX 2 computer chip for self-driving cars is considered to be as powerful as 150 MacBook Pros, and has the capacity to power 12 video camera inputs and sensor fusion. The chip, according to NVIDIA, can run about 24 trillion deep learning operations per second thereby enabling driverless cars to determine the next move in a fraction of a second.

While consumers are already using cameras to stay in a single lane, which has greatly reduced accidents, this is the not the main reason behind the development of this technology. It's in fact the statistics that show a dramatic rise in distracted driving and how some new auto technology like Automatic Emergency Braking (AEB) can prevent tens of thousands of rear-end collisions every year, saving countless lives. NVIDIA is also trying to revolutionize technology to make cars a safer means of getting around.

Notably, the company already provides various technologies such as digital instrument clusters, navigation, advanced driver-assistance systems and infotainment under its partnership agreement with several automakers including Honda (HMC - Analyst Report) , Tesla Motors (TSLA - Analyst Report) Audi, Volvo, Mercedes-Benz and BMW.


Bottom line

As long as the pace of development of automotive technology keeps up, we believe that this Zacks Rank #1 (Strong Buy) stock with a long-term EPS growth estimate of 10.3%, will continue to rally. You can see the complete list of today’s Zacks #1 Rank stocks here.

Many would argue that NVIDIA, with its hefty forward P/E valuation of 36.06x compared with the industry average of 24.9x, is a risky bet. We beg to differ as hefty valuations and increasing share prices do not necessarily imply that the stock does not have much upside potential left.

The stock has grabbed the spotlight with striking performances on the back of solid earnings results and strong growth projections. Keeping this in mind, we believe investing in this stock would yield strong returns for your portfolio in the short term.

Furthermore, with its sustained efforts toward attaining robust position in several emerging industries such as Artificial Intelligence (AI), deep learning and driverless cars industry, NVIDIA has moved way ahead of its main competitor Advanced Micro Devices Inc. (AMD - Analyst Report) in terms of growth.

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