NVIDIA (NASDAQ:NVDA) designs, manufactures, and markets graphics processing units for consumer and enterprise electronics, as well as system-on-chip computer components for mobile devices and automobiles.
The tech stock has been a market darling for a while, rising 59% so far this year. Will the growth keep on coming for the chipmaker or is a plateau on the horizon?
NVIDIA’s shares have been tumultuous
In September 2018, the stock price was $281, but uninspiring earnings guidance and concerns about trade relations between the U.S. and China caused it to drop to $133 in the following months. Early 2019 was kind to the stock. It climbed back to $190, but it once more fell 30% through Q2 with abysmal year-over-year results illustrating overall weakness in demand for the company’s products. Since June, shares have rebounded, climbing to $210.
NVIDIA’s product base gives the company access to numerous end markets that can help it sustain demand growth for the next several years. Growth in data centers and 5G, the Internet of Things (IoT), the proliferation of artificial intelligence and gaming, autonomous vehicles, and cryptocurrency mining all help support revenue growth for the company, which is a tech leader in its focus markets. These trends are unlikely to be completely disrupted in the foreseeable future, so there are certainly reasons to be bullish about NVIDIA’s prospects.
Investors pay a premium to hold NVIDIA
NVIDIA is expensive by almost any valuation metric. The company’s EV/EBITDA ratio of 45.7 is nearly double the semiconductor industry average of 23.5, and its price to free cash flow, at 35.9, is similarly well above the industry average 22.4. This priciness is partially attributable to a strong growth outlook for NVIDIA. But the…