Only 1 Tailwind Supports This Major Stock
NVIDIA Corporation (NVDA) is a well-known name in the technology sector. The company’s technology is used in gaming, data centers, automotive applications, and artificial intelligence.
In its most recent quarter, NVIDIA saw a strong performance from its data center segment but weaker results from gaming.
Despite the macroeconomic headwinds, NVIDIA may still be a lucrative investment for those looking to capitalize on solid performance from the data center segment, potential upside from gaming, and the future growth in automotive and AI.
Let’s take a closer look at how NVIDIA is doing.
What is NVIDIA, and what does it do?
NVIDIA is a technology company that creates graphics processing units (GPUs) and systems on chips (SOCs). The company was founded in 1993 and its products are used in gaming, professional visualization, data centers, self-driving cars, and artificial intelligence.
Aside from GPUs, NVIDIA is a global leader in Artificial Intelligence (AI). It offers a range of technologies and platforms to enable AI development, including:
- GPU-accelerated computing platforms
- Deep-learning software development tools
- Powerful inference solutions for enterprise AI applications
Obstacles NVIDIA must overcome
In the wake of the pandemic, the macroeconomic environment has created a brutal headwind for many businesses. Many technology companies, including NVIDIA, are facing these headwinds. Gaming consoles and PC sales being particularly hard hit as consumers shifted their focus away from purchasing new technology.
Some of the top factors contributing to the macroeconomic headwinds include:
- Slow consumer spending: Consumers have become more cautious with their spending in the wake of job losses, falling wages, and a volatile stock market. This has led to weaker sales for gaming consoles and PCs, two key sectors of NVIDIA’s business.
- Geopolitical tensions: Tensions between major powers such as China and the United States have strained global trade and investment flows. The recent geopolitical tensions between the US and China have directly impacted NVIDIA, with new regulations limiting the sale of specific computer processors to China. With China being NVIDIA’s second largest market, this has equated to up to $400 million in lost sales for the third quarter of 2022.
- The cryptocurrency crash: Cryptocurrency prices have significantly dropped in the past few months due to increased regulation, weaker demand, and fraud cases (as seen by the recent FTX bankruptcy). This has led to a decrease in demand for NVIDIA’s GPUs, which miners use to mine cryptocurrencies, and has flooded the market with used GPUs.
- Inflation: Inflation has been increasing over the past few months due to rising prices for commodities such as oil, copper, and lumber. This could lead to higher input costs for NVIDIA’s products and further weaken consumer spending.
- Oversupply of current inventory: As demand failed to meet expectations, NVIDIA was left with an oversupply of inventory. This may lead to a decrease in prices and margins, hurting profitability. At the same time, it may delay the release of new products.
The strong performance from the data center segment
Despite these macroeconomic headwinds, NVIDIA’s data center segment has outperformed. This is primarily due to increased demand for cloud computing services as companies shift their operations online. The COVID-19 pandemic has accelerated this trend and significantly boosted the data center segment.
NVIDIA’s GPUs are used by cloud service providers such as Google Cloud, Amazon Web Services (AWS), and Microsoft Azure for training and inference purposes in AI applications.
In the third quarter of 2022, NVIDIA posted revenue of $3.83 billion in sales from its data center segment, up 31% year-over-year.
NVIDIA’s response to the macroeconomic headwinds
In response to the macroeconomic headwinds, NVIDIA has made several strategic moves that place the company in a solid position to grow despite the challenging environment.
- Redesigned its processors for the Chinese market: NVIDIA has redesigned its processors to meet the new regulations in China, allowing them to remain competitive in this important market.
- Announced next-generation GPUs: NVIDIA has continued its pursuit of innovation with the announcement of its Ada Lovelace GPUs. These next-generation GPUs are designed with AI in mind, allowing users to run more powerful AI models, complex games, and virtual reality applications.
- Collaboration with Microsoft: NVIDIA recently announced a multi-year partnership with Microsoft to develop one of the most advanced AI supercomputers in the world. This will allow both companies to explore the potential of AI technology further and develop new applications that can benefit both consumers and businesses.
- Collaboration with Oracle: NVIDIA is also collaborating with Oracle to accelerate the adoption of AI in enterprise business. The two companies are collaborating to develop a unified stack that will enable customers to deploy and manage AI applications easily.
NVIDIA as a potential investment
With the data center segment outperforming and the company taking steps to diversify its business, NVIDIA may be an attractive option for investors. The demand for AI-powered solutions is expected to exceed $500 billion by 2023.
Coupled with the autonomous tech market, which is projected to equal $1 trillion, there is tremendous potential for value creation. With NVIDIA at the forefront of these markets, investors may want to consider adding the company to their portfolios.
