A bet on a better future
Jamie Louko (Nvidia): It’s becoming increasingly clear that chips are becoming pillars of our future by powering nearly everything around us. Even today, there can be hundreds or thousands of chips in a car, and this trend will only accelerate as demand for chips rises to power vehicles, artificial intelligence (AI) engines, data centers, and even the virtual world. If you believe that any or all of these trends are going to accelerate and become mainstream a decade from now, you might want to consider owning the gold-standard chip manufacturer in these industries: Nvidia.
Nvidia is best known for its graphic processing units (GPUs) that furthered the gaming industry, but it has since expanded into many other markets. The gaming space still makes up a substantial portion of revenue for the company: Q4 revenue jumped 37% year over year to $3.4 billion. Considering its leadership in GPUs, this growth will likely continue.
Gaming isn’t all the company thrives in, however. It has a hold on the data center, AI, professional visualization, automotive, and even the omniverse spaces. Combined, these industries allowed Nvidia’s revenue to near $27 billion in fiscal 2022 – which ended January 30, 2022 – and that soared 61% year over year. To put the icing on the cake, Nvidia is extremely profitable: The company generated nearly $9.8 billion in net income and $8 billion in free cash flow in the last fiscal year.
All of these spaces are likely to thrive going forward, which means that Nvidia is poised to succeed alongside them. This will allow the company to continue generating immense cash flows, which can be used to heavily reinvest into capitalizing on these expanding markets. Nvidia trades at 56 times earnings – a sky-high valuation for a company this mature. Even though it is growing its net income rapidly, this multiple is nothing to ignore. Therefore, while Nvidia might be one of the best semiconductor companies to buy now and hold forever, you should dollar-cost average into a position over time.
