Why You Should Buy Nvidia (NVDA) Stock Ahead of CES 2018
On Sunday night, Nvidia NVDA founder and CEO Jensen Huang will take the stage to kick off this year’s International Consumer Electronics Show. The latest Fortune “Businessperson of the Year” will present on his company’s breakthroughs in automotive technology—just one of several growth catalysts that management believes will lead Nvidia to the top of the technology world.
The Santa Clara, California-based chip-making giant, which specializes in high-performance graphics processing units (GPUs) used by PC gamers, has emerged as a pioneer in several growing fields, including self-driving cars and artificial intelligence.
Investors have rewarded Nvidia for its innovations. The stock is a Wall Street darling and has gained more than 100% over the past year. In 2017, Nvidia spent a staggering 30 weeks as a Zacks Rank #2 (Buy) or higher, including 24 weeks as a Zacks Rank #1 (Strong Buy)—so when Huang walks on stage to present at CES 2018, he will likely do so with a confident strut.
The conference is always a big event for Nvidia, which has made a tradition of kicking off the event with a high-energy press conference packed with big news. In recent years, it has debuted the DRIVE PX AI automotive computing platform, the SHIELD game-streaming platform, and a self-driving car partnership in front of the massive crowd in Las Vegas.
As investors who follow cutting-edge technology companies know, events like CES can cause rapid share price momentum. Traders love to react to new product announcements, and NVDA has actually seen a response to the event in recent years.
Here’s a snapshot of the stock’s performance over the past seven years, looking at the difference between last closing price before CES and closing price one month after the end of the event:
Considering Nvidia’s history of making marquee announcements at CES, it seems reasonable to assume that we could see a major reveal this week. If that does happen, investors might be in store for another strong post-CES run.
Moreover, NVDA is currently sporting a Zacks Rank #1 (Strong Buy). The stock owes its great Zacks Rank to some remarkable earnings estimate revision activity, as our consensus estimate for its upcoming fiscal year has improved to $4.67 per share from the $3.95 it stood at just 60 days ago.
Nvidia does present some valuation concerns. Shares are currently trading at more than 50 times forward earnings and 53 times trailing 12-month earnings. And its P/S ratio of 14.34 and PEG ratio of 4.95 do nothing to alleviate those concerns.
But the company is also sporting a strong—and improving—balance sheet. Nvidia is generating about $3.48 in cash per share right now, and management is growing its cash flow at a rate of over 123%. Its net margin also sits at a better-than-industry-average 29%.
And while Nvidia may feel overvalued to some, these are the prices investors have to pay these days for dominant and industry-leading technology. As my colleague Kevin Cook pointed out in his profile of Nvidia as Jan. 3’s “Bull of the Day,” it truly feels like “everybody is their customer now.” Indeed, Nvidia can confidently boast nearly every major cloud platform as a client, including Amazon AMZN, Microsoft MSFT, and Alibaba BABA.
Meanwhile, Nvidia remains the number one choice among its core demographic: serious video gamers. In its most recent quarter, gaming revenues were $1.561 billion, up from $1.244 billion last year.
And Nvidia appears to be focusing on automotive technology at this year’s CES, so investors should stay tuned to find out what the company has in store next. Datacenters and gaming have provided the firm’s foundation, and now its other projects are on the cusp of taking off.
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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