3 Things About Nvidia That Smart Investors Know
In 2022, Nvidia's (NASDAQ: NVDA) stock plummeted 50%, burdened by a declining PC market. Demand for PC components still has a steep mountain to climb before it recovers, with worldwide shipments for graphics processing units (GPUs) falling 42% last year.
However, Nvidia stock has managed to rally in 2023, soaring 44% since Jan. 1. Wall Street has grown bullish over its prospects in artificial intelligence (AI), a market looking increasingly likely to play a significant role in future technology. As a result, now is an excellent time to learn more about this promising tech company.
Here are three things about Nvidia that smart investors know.
1. Nvidia has enjoyed monster long-term growth
Despite a challenging 2022, Nvidia's business has soared over the long term. In the last five years, its stock has risen 274% and has skyrocketed 6,700% in the last decade. The company's swift development has been largely owed to its leading 72% market share in consumer graphics cards, which have swiftly grown in popularity in recent years as PC gaming has attracted more players.
While that majority market share hurt Nvidia in 2022, it has also elevated the company to be a key player in tech and given it the financial resources to expand to other areas of the industry. In fact, since 2018, Nvidia's revenue has increased 129% to $26.9 billion, while operating income has risen 84% to $7.2 billion.
2. Nvidia is pivoting toward a high-growth market
Regarding Nvidia's expansion into other areas of tech, the best reason to invest in the company's stock is its crucial role in the future of AI. As a leader in GPUs, Nvidia is home to devices that have the power to run and develop AI software.
According to Grand View Research, the AI market was worth $136.55 billion in 2022 and will grow at a 37% compound annual rate through 2030. As a result, Nvidia is in a prime position to profit from that growth over the long term.
Moreover, in November 2022, Nvidia partnered with Microsoft's Azure to build a massive cloud AI computer. The collaboration will combine Nvidia's GPUs with Azure software which will "help enterprises train, deploy, and scale AI." With a cloud computing giant like Azure at its side and its powerful GPUs, Nvidia could flourish in AI.
3. Nvidia plays a key role in game consoles
While Nvidia is best known in video games for its contribution to the PC aspect of the market, the company also has a solid position in consoles. The tech giant exclusively supplies the graphics and processing power on Nintendo's Switch console through a customized system on a chip (SoC).
This partnership with one of the biggest names in video games has seen Nvidia's chips get into the hands of millions of consumers. According to Nintendo's latest earnings report, the console has sold 122.55 million units since it launched in 2017, making it the third-best-selling console of all time, only behind Nintendo's DS and Sony's PlayStation 2.
While Nvidia is still profiting from ongoing Nintendo Switch sales, a successor to the popular console has long been rumored. With 2023 being the sixth year since the original console launched, expectations are ramping up that Nintendo will release a sequel to the Switch in 2023 or 2024. In the past, Nintendo has always left between five to six years between console generations, with the Game Cube released in 2001, the Wii in 2006, Wii U in 2012, and the Switch in 2017.
As Nvidia is expected to once again supply its SoC for the next Switch, the company could receive a significant boost to revenue over the next one to two years.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.
