NVIDIA is leading the first cloud upgrade cycle with graphics chips that can handle AI
There is no stopping the stock of NVIDIA Corp. (NASDAQ:NVDA), the graphics chip designer that dominates gaming and, increasingly, Artificial Intelligence (AI).
The shares are up 76% in 2017, with analysts pounding the table for it and one even nick-naming a dog for it. The latest price target of $250 per share would take the market cap to $150 billion, within sight of mighty Intel Corp. (NASDAQ:INTC), whose value has stalled out at $178 billion.
But this is not a bubble stock. Nvidia sales are growing 50%, year-over-year, each quarter, and it brings 25% of those revenues to the net income line. The company’s debt is just 25% of assets, and has been declining through 2017. Operating cash flow came in at nearly $1 billion for the most recent quarter.
The price to earnings ratio of nearly 54 looks high, but if earnings keep growing you may be paying less than 30 times 2018 earnings if you buy now.
All About the Cloud
If NVIDIA were still suck in its original niche of gaming chips, this would not be happening. But graphics processing can easily be adapted to deep learning, sucking up huge amounts of data and offering quick analysis. That’s the heart of artificial intelligence, which is now being built into clouds.
Systems like Amazon.Com Inc.’s (NASDAQ:AMZN) Alexa, Microsoft Corp. (NASDAQ:MSFT) Cortana, International Business Machine Corp. (NYSE:IBM) Watson, Apple Inc. (NASDAQ:AAPL) Siri and Google Assistant from Alphabet Inc. (NASDAQ:GOOGL) aren’t just voice interfaces. They are front ends to artificial intelligence. They require the support of more processing power than the cheap, low-end silicon clouds were originally built with can deliver.
Now that these clouds are built, the race is on to upgrade them, to add capability that offers instant answers to complex questions. It’s not just the data center market that’s booming, but AI based on graphics chips turns out to be at the heart of self-driving cars, the next hot market.
All this has put NVIDIA in a very sweet spot.
Article printed from InvestorPlace Media, https://investorplace.com/2017/09/nvidia-bigger-than-intel/.
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