NVIDIA Corporation (NASDAQ:NVDA) is all set to release its earnings report on Thursday. The report could make or break NVIDIA stock momentum in the short term. Wall Street expects NVIDIA Corporation (NASDAQ:NVDA) to earn $0.69 per share on $1.96 billion revenue. Affinity Investment Advisors analyst Gregory R. Lai, Principal, Lead Portfolio Manager thinks that NVidia will beat estimates — but the stock might not react as it is priced for perfection.
There are several concerns about NVIDIA Corporation (NASDAQ:NVDA) shares. We will take a look at these concerns first to evaluate the risks and then talk about the bullish case for the stock.
Tough Market Conditions
NVidia is facing a tough competition in its core business of GPUs. The company’s biggest competitor AMD is persistently launching low-cost GPUs, attracting a vast customer base from the gaming community. RBC Capital Markets LLC analyst Mitch Steves thinks that NVidia’s future largely depends upon the company’s dominance in the GPU sector.
If it fails to provide the best GPUs, it will lose its growth trajectory, despite its business initiatives in Artifical Intelligence (AI), self-driving cars and cryptocurrency. NVidia makes 53% of its revenue from the gaming business.
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Slowing Growth and Valuation Concerns
NVIDIA stock has gained over 56% year-to-date. Operating income in the year is up more than 100%. Data center is another growing business arm of NVidia. In the fiscal first quarter of 2018, data center growth came in at 186%.
However, despite the revenue growth of 48% in the first quarter, analysts are expecting growth for the full year to slow down to just 20%. Given the high valuation of NVidia, any growth decline will result in a huge stock crash.
The stock was trading at about $25 twelve months ago. Today, it is trading at $167. NVidia market cap is close to $100 billion. Several analysts now think that the stock has entered a red territory and could burst very soon due to its valuation problems.
But NVIDIA Corporation (NASDAQ:NVDA)’s revenue streams are diverse, and its growth opportunities are too big to ignore.
Betting on Artificial Intelligence
NVIDIA Corporation (NASDAQ:NVDA)’s bets on AI make it a big growth stock. Artificial Intelligence market worth is expected to rise to over $16 billion by 2022. Facebook recently announced that it will deploy NVIDIA DGX-1 AI supercomputer to power Caffe2 platform for deep learning. Automaker Toyota recently said it will use NVidia’s PX AI car platform in its automobiles. NVidia also has a large partnership with about 50 car companies, including Bosch.
Cryptocurrency Craze Leads to More GPU Sales
NVIDIA Corporation (NASDAQ:NVDA) is outpacing AMD in the cryptocurrency market. Bitcoin miners are going crazy for NVidia GPUs because they are the best devices for bitcoin mining. AMD is unable to keep up with the demand, while NVidia is churning out large amounts of Bitcoin mining GPUs to meet the burgeoning demand. The company even launched a special GPU for Bitcoin miners a few weeks ago. There is no end in sight to the Bitcoin and Ethereum craze. Bitcoin recently crossed $3,000 mark. Therefore, NVidia GPU sales will keep rising.
Investment firm SunTrust recently upped its price target for NVidia to $177 from $124.