Shares of Nvidia (NASDAQ:NVDA) gained 53.2% in the first half of the year, according to data provided by S&P Global Market Intelligence. After posting robust growth in revenue and profits in fiscal 2021 (which ended in January), Nvidia reported another spectacular earnings report in May, with revenue up 84% and earnings per share up 106% over the year-ago quarter.
Wall Street analysts have been raising their full-year revenue and earnings estimates, which might lead to more upside, especially if a key catalyst comes to fruition.
Nvidia is inching closer to completing its acquisition of Arm Holdings from Softbank Group (OTC:SFTBF) (OTC:SOBK.Y), although getting approval by regulators in the U.K., European Union, China, and U.S. is still a high hurdle to clear. If the deal is completed in 2022, as management expects, Nvidia would have its product in just about every smartphone in the world, with upside in new markets across data center, Internet-of-Things, and embedded devices.
However, Nvidia will still do well whether it has Arm or not. Its chips are behind cutting-edge technologies that will have huge ramifications on how consumers and businesses get things done in the future. It’s estimated that the implementation of artificial intelligence and 5G will add over $10 trillion in economic value by 2035, and Nvidia is the leader in providing the high-performance graphics processing units (GPUs) needed to make it happen.
Analysts expect Nvidia to post $24.9 billion in revenue this year, with earnings per share coming in at $15.82. That makes the current stock price look expensive, trading at a forward price-to-earnings ratio of 47 times earnings estimates, but I wouldn’t underestimate this dominant GPU provider.
Nvidia is expanding into software services, which could lead to a windfall in profits over the next decade. The company talked about its NVIDIA AI Enterprise platform at its investor day in April and has a new central processing unit (CPU) launching in 2023 for data center.
Investors should only buy shares with a long-term mindset, because as we saw in 2020, anything can happen in the near term. But if you have at least 10 years to invest, this growth tech stock still offers attractive return potential.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.