Nvidia Corp (Nasdaq: NVDA) Performance Update

*** Update 01/06/2016 ***

Please note that NVDA has been sold from the portfolio due to gaping more than 10% during a trading session, which is part of our model to avoid stocks under takeover offers and lock in profit from those, as in this situation that has unexpectedly beat earnings. 


Another stock in our US momentum portfolio that requires some commentary is NVIDIA (NVDA) which jumped 16.8% over the last two trading sessions. For members who are holding the stock we believe it would be beneficial to provide some insights as to the reasons behind this, keeping in mind the stock was chosen purely based on its momentum.

Figure 01. NVDA vs S&P500


NVIDIA Corporation (NVIDIA) is engaged in visual computing, best known for graphics cards found in high end gaming PC's where it is facing little competition from its only notable rival, AMD, controlling around 75% of market share. It has been able to sidestep the recent global slowdown in PC sales but focusing on high-end graphics cards which have proved resilient to macro headwinds. NVIDIA has expanded into the rapidly growing markets of professional visualisation through its Pascal architecture chips which is expected to provide increased performance at better margins with a low cost to manufacture. Data centres & cloud services sales rose 62% as did automotive sales up 46% for which it has pioneered systems (Drive PX) that will help run self-driving vehicles.

NVIDIA reporting first quarter earnings on Friday which saw sales rising 14% year on year to US$1.31 billion vs analyst estimates of US$1.26 billion while earnings per share grew to US$0.33 vs US$0.32 expected. Analysts have also now raised their second quarter earnings forecast to a consensus of US$0.37 per share vs US$0.33 a month prior and earnings have now beat estimates 3 out of the past 4 quarters.

Figure 02. AWK vs Peers


By my calculations with a forward Price/Earnings to growth ratio of 1.21 NVDA remains priced below its main competitors.  With projected revenue growth of 11.2% and forecast earnings per share growth of 43.8% in 2016, while not guaranteed, suggests that NVDA remains an attractive investment from both a momentum and fundamental point of view.