3 Things About Nvidia That Smart Investors Know
© Courtesy of The Motley Fool. 3 things savvy investors know about NvidiaNvidia (NASDAQ:NVDA) stock has deteriorated over the past 12 months, down 50% year-to-date. The company has experienced a sharp decline in the graphics card (GPU) market this year, according to Jon Peddie Research, with global shipments down 25.1% in the third quarter of 2022. Lower consumer demand has impacted the entire PC market, mainly due to rising inflation.
Given Nvidia's 72% market share in the discrete GPU market, investors were right to be concerned about the tech giant. However, all hope is not lost for the company. Here are three things savvy investors know about Nvidia.
1. Discrete GPU leader
Nvidia's rise in the tech world has a lot to do with its dominance of the consumer GPU market, which gives it real power in the industry to keep up with growing competition.
In 2022, for example, Nvidia launched its biggest product since 2020 with the RTX 4000 series of graphics cards, which replaced the previous generation RTX 3000 . The rollout was bumpy as consumers were unhappy with the price hikes across the range. The RTX 4080 started at $1,199, while its 2020 equivalent, the RTX 3080, started at $699.
When Advanced Micro Devices (NASDAQ:AMD) launched its Radeon RX 7900 XTX in December for $999 and less than 2% of the same performance as Nvidia's RTX 4080 16GB, it seemed the company was in trouble. However, Nvidia's market leadership gives it some leverage to counter AMD's offerings.
Despite the significantly higher prices of Nvidia's RTX 4000 series, the RTX 4080 would only cost around $300. However, the company has plenty of room to counter AMD's competitive pricing. The only thing AMD's new cards compare to the RTX 4000 series is the price. Nvidia has market share and dominates.
2. Profitable game console business
In 2017, Nvidia became the exclusive provider of graphics and processing power for one of the best-selling game consoles in history, the Nintendo Switch. As of November, Nintendo has sold over 114 million Switch consoles, and the same number of custom Nvidia chips has become commonplace.
Several reports indicate that Nintendo is currently working on a sequel to the Switch that could arrive as early as 2023. Since 2017, Nintendo has released a version of the Switch console every two years, with a Lite version in 2019 and a Switch OLED in 2021.
Speaking of the past, consumers should expect a new Switch in 2023. The sequel to the revamped console will significantly boost sales as Switch owners look to upgrade their current consoles. If so, Nvidia sees significant benefits from its key position in the development of the Nintendo Switch.
3. New data center business
While it's best known for its PC offerings, Nvidia is also home to a thriving data center business. In Q3 2022, the majority of Nvidia's revenue came from data centers. The segment earned $3.8 billion, up 30.5% year over year, and accounted for 64.6% of revenue for the quarter.
With the rapidly expanding cloud computing market, the demand for data centers continues to grow and Nvidia is well positioned to generate significant long-term profits. According to Grand View Research, the $368.97 billion cloud computing market is projected to grow 15.7% through 2030, and data centers are critical to industry growth.
In November, Nvidia announced a multi-year partnership with Microsoft Azure to create "massive AI-powered cloud computing." The partnership will combine Azure supercomputing infrastructure with Nvidia GPUs. Given that Azure is responsible for a rapid 25% increase in the cloud computing market, the team could be incredibly profitable for Nvidia's long-term future.
Nvidia may stumble in 2022, but that hasn't hurt its long-term prospects. The P/E ratio is 65, which indicates that the stock is not doing well at the moment. However, Nvidia is definitely a company to watch as its finances are expected to improve in the new year, which bodes well for investment.
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Dani Cook has no position in any of the stocks listed. The Motley Fool reviews and recommends Advanced Micro Devices, Microsoft and Nvidia. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.
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