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Can NVIDIA (NVDA) Stock Maintain Its Bull Run in 2020?

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NVIDIA (NVDA - Free Report) witnessed a turbulent ride in early 2019, thanks to weakness plaguing the gaming and datacenter markets. Moreover, deteriorating macro-economic conditions and the US-China trade war remained major dampeners.

Nonetheless, NVIDIA’s confidence in its strategies and growth opportunities in ray-traced gaming, rendering, high-performance computing, AI and self-driving cars, have helped the stock rebound in no time.

Notably, NVIDIA has been one of the outstanding performers in the semiconductor space this year. The stock has skyrocketed 76.4%, outperforming the industry’s growth of 37.6% as well as the S&P 500’s 26% rally.

The company boasts an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing four reported quarters, the average being 8.8%.

Fiscal 2021 Estimates Look Impressive

The Zacks Consensus Estimate for fiscal 2021 earnings (fiscal year ending January) is pegged at $7.21, indicating growth of 29.7% year over year.

Further, the Zacks Consensus Estimate for fiscal 2021 revenues is pegged at $12.86 billion, indicating growth of 19.44% year over year.

Let’s check out the factors that are likely to boost the Zacks Rank #2 (Buy) stock in the next year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strengthening Gaming Business

NVIDIA’s fate is highly tied to its gaming segment, which remains the largest contributor to its revenues. Recovery in the segment backed by strength in both desktop and notebook gaming, which is largely driven by adoption of RTX GPUs, makes us optimistic.

Notably, NVIDIA has been instrumental in introducing real-time ray tracing technology to the gaming world and its potent technology has provided the company with a substantial economic moat in this industry.

A spate of blockbuster AAA titles, which pledged support for NVIDIA RTX ray tracing technology, is a positive. During the last reported quarter, NVIDIA announced that Microsoft’s (MSFT - Free Report) Minecraft game will feature the technology. Further, the company believes, the recently released GeForce RTX SUPER GPUs will strengthen its leadership in the high end of the market.

Moreover, NVIDIA is making a big bet in the cloud gaming field with its platform GeForce Now.

The company is taking various initiatives to expand its footprint in the cloud gaming space, which is a positive.

Recovery in Data Center Business

Data center presents solid growth opportunity for the company. As more and more businesses are shifting to cloud, the need for datacenters is increasing.

Moreover, growing adoption of Conversational AI among hyperscale customers is a key driver. NVIDIA believes Conversational AI to be a powerful catalyst for the company in both training and inference. Increasing adoption of Natural Language Processing by cloud players is an upside.

Further, the company’s T4 GPU continues to gain adoption in public clouds. In September, Amazon (AMZN - Free Report) cloud computing arm, AWS, announced general availability of the T4 globally, following the T4 rollout on Alphabet’s (GOOGL - Free Report) Google Cloud platform earlier in the year.

Considered most preferred by the datacenter operators, NVIDIA’s GPUs are likely to help the company grab a larger market space. The company’s acquisition of Mellanox, to be completed in early 2020, is likely to be a key catalyst in this regard.

Automotive Holds Promise

NVIDIA’s steady focus on developing more updated AI technologies for self-directed cars is making it well poised to become a leading provider of technology for autonomous vehicles. Development agreements with automakers like Mercedes Benz, Toyota and Volkswagen's Audi unit is a key driver.

Recently, at GTC China, the company introduced a highly advanced software-defined platform, NVIDIA DRIVE AGX Orin for autonomous vehicles and robots. The new system-on-a-chip (SoC) Orin, which packs 17 billion transistors, delivers seven times the performance of the company’s previous generation, Xavier SoC.

Bottom Line

With the proliferation of AI, growing adoption of NVIDIA’s GPUs in various end-markets is likely to remain the key catalyst. By applying its GPUs in the AI models, the company is expanding its footprint in not just data center and gaming markets but other untapped markets like automotive, healthcare and manufacturing, which will support its earnings and revenues in the years to come.

Further, a stable U.S. economy and a partial trade deal with China makes us optimistic.

Moreover, the company’s huge cash balance of approximately $9.77 billion as of Oct 27 made it easier for it to fund its growth initiatives, such as investments in research and developments, sales and marketing as well as acquisitions, thereby raising our optimism on the stock.

Zacks Top 10 Stocks for 2020

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