NVIDIA
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NVIDIA is a company many are envious of. As of October 2020, the company is the leading designer of graphical processing units (GPU) and other computing chipsets used in both gaming and professional markets. The company operates in three key segments: gaming, mobile devices and automotive electronics. With the changing technological landscape, NVIDIA has a heavy focus in the artificial intelligence space as well. The company is headquartered in Santa Clara, California, USA. It was founded on April 5th, 1993 by Jensen Huang, Chris Malachowsky and Curtis Priem. NVIDIA started simply as a chip designer, but it made its mark in 1997 when it introduced the RIVA series of GPUs for gaming computers.
It then followed up with the GeForce series that would allow for enhanced 3D capabilities, and it managed to edge out its major competitor at the time, 3Dfx Interactive; a company it would later fully acquire. By the turn of the century, NVIDIA was well on top in the GPU space, and a partnership with Microsoft for the development of Xbox chipsets paved the way for future domination. It did not take long for the company to start diversifying into the lower end consumer market, and today the company is also involved in the development of chipsets for mobile devices. NVIDIA went public on January 29th, 1999, listing on the NASDAQ where it trades under the ticker symbol NVDA. The stock falls in the Technology sector, under the Semiconductors industry.
NVIDIA Stock History
NVIDIA has had 4 stock splits as of October 2020: a 2-for-1 on June 26th 2000; a 2-for-1 on September 17th 2001; a 2-for-1 on April 7th 2006; and a 3-for-2 on September 11th 2007. Adjusted for splits, NVIDIA stock started trading for a little over $1.50 after its IPO. It did not enjoy the tech bubble, but it drifted to highs of just above $10 by mid-2000. The stock then continued trading sideways until September 2007 when it edged higher towards $40 where it faced tough resistance. The stock tumbled again to lows of circa $10 and continued a multiyear sideways trend until 2016. The company received massive fundamental tailwinds as cryptocurrency mining, and artificial intelligence activities gathered steam.
This inspired the stock to highs of circa $290 by October 2018, after which a retracement was triggered that sent the stock to lows of circa $130 by January 2019. The stock has since recovered and has sustained an uptrend that sent it to its all-time high of just above $573 in September 2020. With gaming still delivering the bulk of NVIDIA’s revenues and profits, the 2020 coronavirus pandemic that kept gamers at home was a huge positive fundamental factor. NVIDIA started paying out dividends in 2012 when it paid out $0.08 per share to investors. That has since been bumped to a payout of $0.64 per share in 2020. For investors, the most important metric is that the NVIDIA dividend rate is still around 0.12%, far below the S&P average of 2%, and its industry average of 3.5%. There is still room for much higher dividend payouts for a stock that delivers returns similar to non-dividend paying stocks.
How to Trade the NVIDIA Stock
- Tariffs and Trade Agreements
NVIDIA produces chips that power the computing world and subsequently, our daily living. The market for NVIDIA is the entire world. The company also operates as a fabless semiconductor company, which essentially means that it designs chips that can be manufactured in other jurisdictions. This means that the company is susceptible to tariff and trade agreements between different jurisdictions. For instance, during the US-China trade tensions, the semiconductor industry in the US witnessed declining sales, and the stock price of NVIDIA was not spared either. Tariffs are also an important factor as they can determine the bottom line price of products and influence their eventual demand in the market. - New Product Rollout
NVIDIA is well on top of the GPU industry, and this is mainly because of hit products in its history such as GeForce, Tegra and Quadro. But the GPU market is not in perpetual growth, and the growth of mobile devices will no doubt shrink or at least limit the returns from that market. This means that NVIDIA should boost its innovative activities outside the core GPU sector. Granted, NVIDIA is a company with a strong foundation in innovation. But in recent years, critics have suggested that their product list has been bloated as a result of responding to other players in the industry as opposed to in-house creativity. A bloated product list can lead to inconsistent revenues and profits. The GPU segment brings in the bulk of NVIDIA profits, but investors are keen on watching how the company will perform outside this space. - Competitor Performance
The stable profits realised in the semiconductor industry have always attracted fierce competition from rivals. The insanely competitive industry that NVIDIA operates in is characterised by rapid technological advancements, changing industry standards and declining prices for end-consumer products. Some of the biggest competitors NVIDIA faces include AMD, Intel, Broadcom and Qualcomm. All of these competitors have massive resources, and they never shy away from taking the challenge to NVIDIA when it comes to producing higher quality and competitively priced, alternative products. In a fast and dynamic market, the competition for NVIDIA is ever-present, but it may also come from new players or mergers that will synergise existing companies. Investors should always watch out for developments by the competitors of NVIDIA, and whether the company will be able to maintain their edge by anticipating trends in the industry and consumer demands. - Periodic Earnings Reports
NVIDIA’s fiscal year runs from February to January. The company releases quarterly and annual earnings reports that shed light on the performance of NVIDIA in its different operating business segments. In addition to GPU sales in the gaming and cloud computing market, NVIDIA investors should also look at automotive sales as well as overall growth in margins and commentary on the artificial intelligence business. This will help in understanding the overall business health of the company as well as its future prospects. Positive fundamentals always inspire demand for the stock, whereas weak or negative fundamentals can trigger a selloff.
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Nvidia Stock FAQ
- Why should I trade Nvidia shares?
Nvidia shares have seen an amazing rally that began in 2015 and has seen the stock moving higher consistently since then. The only exception was a three month stretch in late 2018 which saw the stock cut in half. Shares did rapidly recover from that drop, which is now looked upon as one of the best opportunities to buy Nvidia at more reasonable levels. Since that dip the stock hasn’t looked back as it climbs higher and higher on the back of increasing demand for its chips that are used in GPU graphics and AI applications.
- Is Nvidia the best semiconductor stock for trading?
With its strongly trending behaviour Nvidia has been an excellent stock for trading since 2015. Some traders would undoubtedly call it the best semiconductor stock for trading, and they could be right. During some periods of time there’s no doubt that the price action of Nvidia shares has been superior to the vast universe of other stocks, including those other semiconductor manufacturers. Whether you are a scalper, a day trader, or a swing trader it’s pretty certain you’ll find opportunities when trading Nvidia shares thanks to the strong trends it exhibits.
- What’s the best strategy for trading Nvidia shares?
Based on the almost vertical uptrend seen in Nvidia since 2015 it’s pretty clear that a trend following or momentum-based approach is best when trading Nvidia shares. This type of approach can be applied on any time frame too, and some of the most successful strategies look at the opening moves in the stock, trading based on the price action seen in the first 30 minutes of each trading session. No matter which time frame you focus on, or what trading strategy you choose to employ, always remember to use proper risk management because nothing is ever certain.
