NVIDIA (NASDAQ: NVDA) is a classic Buffett-style investment because it is boring but makes lots of money.
For example, NVIDIA reported a quarterly gross profit of $1.916 billion on quarterly revenues of $3.014 billion on 27 October 2019. Moreover, NVDIA reported a quarterly net income of $899 million and a quarterly operating income of $927 million on the same day.
Furthermore, NVIDIA can experience dramatic increases in profit, revenue, and income each quarter. For instance, NVIDA’s net income jumped from $552 million on 28 July 2019 to $899 million on 27 October 2019. Meanwhile, NVIDIA’s gross profit rose from $1.541 billion to $1.916 between July and October 2019. Plus, NVIDIA’s revenues rose from $2.579 billion to $3.014 billion in the same period.
Conversely, NVIDIA can experience big drops in revenue, profit, and income. For instance, NVIDIA reported a gross profit of $1.921 billion; revenues of $3.181 billion, and a net income of $1.230 billion on 28 October 2019. However, NVIDA reports no losses for the past seven quarters.
The NVIDIA Money Machine Keeps Paying Off
Therefore, NVIDIA (NASDAQ: NVDA) keeps paying off. Thus, gamers should not expect a price drop for NVIDIA graphics processing units (GPUs), Techradar’s Darren Allan muses.
Observers credit the RTX and Super GTX discrete cards for NVIDIA’s profits. Importantly, NVIDIA CEO Jensen Huang credits gamers for his company’s profits.
“Our gaming business and demand from hyperscale customers powered Q3’s (third quarter) results,” Huang says in a press release. “The realism of computer graphics is taking a giant leap forward with Nvidia RTX.”
NVIDIA could make more money in 4th Quarter 2019 because they released the GTX 1660 Super GPU card on 29 October 2019. Moreover, NVIDIA plans to release the 1650 Super GPU card on 22 November 2019 just in time for the Christmas shopping season in America and Europe.
Another profit driver at NVIDIA could be the RTX208 ti released in September. The RTX208 contains Turing architecture, PC Gamer reports. Gamers love such cards because they are faster and more realistic.
NVIDIA Cashes in on Artificial Intelligence and Deep Learning
Beyond gaming, NVIDIA (NASDAQ: NVDA) is cashing in on deep learning with its T4 GPUs. The T4 GPU is an interface that enables people to use artificial intelligence (AI) for training and deep learning.
“This year we started to see the growth of inference to the point where we sold more T4 units for inference than we sold V100s, which we sell for training, and both were record highs,” Huang says on NVIDIA’s 3rd Quarter earnings call. To clarify, the V100 is the GPU Tesla Motors (NASDAQ: TSLA) installs in its self-driving vehicles.
In detail, customers can use the NVIDIA T4 GPU to accelerate cloud workloads, deep-learning training, machine learning, data analytics, and graphics. They base the T4 GPU on the NVIDIA Turning architecture. They optimize the T4 GPU for mainstream computing environments with a 70-watt small PCIe form factor, Turing Tensor Cores, and RT Cores.
NVIDIA cashes in on the Cloud
Moreover, NVIDIA is cashing on the cloud. CRN estimates NVIDIA’s hyperscale cloud service business grew by 11% during 3rd Quarter 2019.
Plus, NVIDIA is trying to expand its cloud business by buying Ethernet and Interconnecti solutions provider Mellanox Technologies for $6.9 billion, CRN reports. Mellanox powers the cloud by making the Ethernet more scalable and efficient.
Businesses Mellanox services include IP Video, gaming, streaming video, security, telecom, data centers, telecoms, data centers, internet computing, and data storage. For instance, internet protocol video (IP Video) is the basis of streaming video platforms.
Therefore, NVIDIA is moving to cash in on the growth of streaming video. Streaming video services are growing like weeds.
For example, Disney (NYSE: DIS) claims its Disney+ platform attracted over 10 million subscribers on its first day of operation (12 November 2019), The Verge reports. In addition, Disney claims people downloaded the Disney+ plus app 3.2 million.
How Much Cash is NVIDIA generating?
Importantly, NVIDIA (NASDAQ: NVDA) is generating a lot of cash. For instance, NVIDIA reported an operating cash flow of $1.64 billion, an investing cash flow of $1.256 billion, and a free cash flow of $1.537 billion in 3rd Quarter 2019.
The free cash flow grew from $823 million and $936 million on 28 July 2019. However, the investing cash flow fell from $3.545 billion on 28 July 2019. Plus NVIDIA has reported positive investing cash flows for five flows for the last five quarters.
Finally, NVIDIA had $9.765 billion in cash and equivalents on 27 October 2019. That number grew from $7.105 billion on 28 July 2019.
Thus, NVIDIA is cash-rich company with total assets of $15.81 billion. Therefore, NVIDIA meets the most important value criteria in my mind. It generates and keeps a lot of cash.
Is NVIDIA Undervalued?
I think Mr. Market undervalued NVIDIA stock at $210.56 on 22 November 2019. I consider NVIDIA undervalued because it has the potential to make far more money.
In particular, NVIDIA could generate a lot of cash with artificial intelligence (AI). Notably, the McKinsey Global Institute predicts AI will add $13 trillion to global economic output by 2030.
Conversely, PwC’s Global Intelligence Study claims AI could add $15.7 trillion to the global economy by 2030. Additionally, PwC claims AI increase gross domestic product (GDP) in some countries by 2030.
NVIDIA could make money from AI because companies and countries will buy GPUs like T4 to make more money. Interestingly, PwC research shows 45% of economic gains by 2030 will come from product enhancement created by products like AI and GPUs.
In addition, PwC predicts the greatest gains will be in two of NVIDIA’s main markets North America and China. In detail, PwC predicts AI will boost China’s GDP by 26% and North America’s GDP by 14.5%. In total, AI will add $10.7 trillion to the North American and Chinese economies.
NVIDIA (NASDAQ: NVDA) is a proven money maker in a growing business that generates a lot of cash. Hence NVIDIA is a growth stock and a value stock in one package.
NVIDIA is a Great Dividend Stock
NVIDIA is a growth and value stock that pays a nice dividend. NVIDIA will pay a 16₵ dividend on 27 November 2019.
Plus that dividend is growing. Dividend.com credits NVIDIA with six years of dividend growth. In total, NVIDIA shareholders received a 0.30% dividend yield, a 64₵ annualized payout and a payout ratio of 9.65% on 22 November 2019.
Hence, NVIDIA is a good income and dividend stock with a high margin of safety. NVIDIA’s margin of safety is high because it generates a lot of cash.
Why NVIDIA is important
NVIVDIA (NASDAQ: NVDA) is an important company because it makes money innovative. In particular, NVIDIA makes money from gaming, deep learning, AI, machine learning, self-driving vehicles, streaming video, and robots.
NVIDIA’s success shows us those new technologies make money. However, NVIVDIA demonstrates there are limits to those technologies’ growth.
To explain, NVIDIA has reported four straight quarters of negative revenue growth. In detail, NVIDIA reported revenue growth shrinkage of -24.25% on 27 January 2019, -30.78% on 28 April 2019, -17.42% on 28 July 2019, and -5.25% on 27 October 2019.
Thus, NVIDIA’s revenue growth is not increasing even though its revenues are increasing. Hence, there are limited markets for some of NVIDIA’s tech.
Conversely, NVIDIA proves you can make a lot of money from those new technologies. Thus, people who want to make money need to investigate NVIDIA stock.