For Investors, Nvidia Is a Gift That Keeps on Giving

Stocks to buy

Nvidia (NASDAQ:NVDA) is one of the top growth stocks and has consistently outperformed in the past several years. Stellar growth across its data center and gaming segments have driven NVDA stock’s market cap over $800 billion.

A racecar featuring Drive PX 2 technology from Nvidia (NVDA) parked.

Source: Steve Lagreca / Shutterstock.com

In the past couple of years, Nvidia has branched out into various verticals to diversify its revenue streams and create even more upside for NVDA stock.

NVDA stock has grown by over 1,000% in the past five years and continues to rack up solid gains. The stock has been up an incredible 150% in the past year, outperforming the S&P 500’s returns of roughly 31%. Though the stock trades at over 30x forward sales, its sparkling fundamentals and incredible long-term growth potential justify the lofty valuation.

Hence, NVDA stock is a great stock to buy on the dips with a risk profile that’s skewed to the upside.

Fantastic Growth for NVDA Stock of Late

Nvidia continues to write new chapters in its illustrious growth story. Due to healthy demand from its data center and gaming segments, it achieved a whopping 50% top-line growth in the third quarter. Gaming revenues shot up to $3.22 billion in the quarter, growing by 42% on a year-over-year basis. Moreover, data center revenues surged to an incredible $2.94 billion, growing by 55% in the second quarter. Consequently, Nvidia exited the quarter with roughly 65% gross margins.

Looking ahead, the company is likely to grow at a healthy pace as its data centers can effectively handle huge amounts of workloads. Moreover, its gaming business is getting pricing support from the market due to the rampant demand from gamers and crypto miners for GPUs. This year, Nvidia’s GeForce RTX 30 series has witnessed robust demand-pricing and was unaffected by the steep decline in cryptocurrency prices.

With Nvidia’s stellar performance across its key segments and the potential of its niche segments, it’s looking at a massive improvement in free cash flows ahead. The market is projecting a healthy increase in revenues to roughly $26.4 billion this year and $31 billion in the fiscal year 2023.

Promising Niche Segments

Having assessed Nvidia’s position in its core business segments, let’s look at how it’s faring in its newer ventures. NVDA is currently focusing on expanding its reach into cloud gaming, self-driving platforms and streaming devices. It is up against Alphabet’s (NASDAQ:GOOGNASDAQ:GOOGL) Stadia in the cloud-gaming sector and is currently doing much better in gaining traction with users. Its GeForce platform has 10 million users, while Stadia is estimated to have just 2 million.

Moreover, we have the self-driving business where Nvidia is developing an “in-vehicle AI computer” apart from its processor. Its incomparable mix of software and hardware will help it carve out a sub-niche for itself.

Finally, we have Nvidia’s streaming media offering, Shield, which connects all the top streaming services. Moreover, it also supports its GeForce Now cloud gaming service. This is a unique feature that Nvidia’s top boxes are offering to its users. Though it isn’t a major profit center now, it could contribute heftily to the company’s top-line in the coming years.

Final Word on NVDA Stock

NVDA stock has performed extremely well in the stock market, and so has its underlying business. My expectations are that the company will be growing at an astonishing pace for the foreseeable future. Therefore, the concerns regarding its valuation are overblown, as NVDA stock has plenty of remaining upside.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

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