➡️ This is a step-by-step stock review to determine if Nvidia (NVDA) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.
Nvidia is a global software and fabless company founded in 1993 and headquartered in Santa Clara, CA.
Table of Contents
- Step 1: Tykr Rating
- Step 2: Nvidia Company History
- Step 3: Nvidia Business Model
- Step 4: Nvidia News
- Step 5: Nvidia Competition
- Step 6: Nvidia 4Ms
- Step 7: Is Nvidia stock a good buy?
Step 1: Tykr Rating
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $159
- Fair Value: $161
Step 2: Nvidia Company History
➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition.
- In 1993, Nvidia was founded by Jensen Huang and Curtis Priem. Huang previously served as a director at LSI Logic and a microprocessor designer at AMD. Malachowsky previously served as an electrical engineer at Sun Microsystems. Priem previously served as a senior staff engineer and graphics chip designer at Sun Microsystems. The three co-founders believed that the proper direction for the next wave of computing was accelerated or otherwise known as graphics-based computing because it could solve problems that general-purpose computing could not. They also noticed that video games were both computationally challenging and in high demand which motivated them to focus on the video game industry first. They started the company with $40K but quickly raised $20M in venture capital from Sequoia Capital. They originally did not have a name for the company but the three co-founders had a habit of saving all files as NV as in “Next Version”. Shortly after, they arrived at the name invidia which is the Latin word for “envy”.
- In 1998, they released the RIVA TNT which solidified Nvidia’s reputation for developable graphics adapters.
- In 1999, they went public.
- In 1999, they released the popular GeForce 256 (NV10) chip which allowed for advanced video acceleration, motion compensation, and hardware sub-picture alpha blending which provided performance capabilities over and above the competition.
- In 2000, Nvidia won the contract to develop graphics hardware for Xbox, which earned Nvidia a $200M advance.
- In 2000, Nvidia acquired the intellectual assets of rival 3dfx.
- In 2002, Nvidia acquired Exluna, which made improvements to software-rendering.
- In 2003, Nvidia acquired MediaQ for approximately $70M.
- In 2004, Nvidia acquired iReady, a provider of high-performance TCP/IP and iSCSI offload solutions.
- In 2004, Nvidia started working with Sony on the design of the graphics processors in PlayStation 3 consoles.
- In 2005, Nvidia acquired ULI Electronics, which at the time, provided third-party parts and chipsets to ATI, Nvidia’s competitor.
- In 2007, Nvidia was named Company of the Year by Forbes, citing accomplishments within the video game industry over the previous five years.
- In 2007, Nvidia acquired PortalPlayer.
- In 2008, Nvidia acquired Ageia, developer of the PhysX physics engine and physics processing unit.
- In 2008, Nvidia took a write-down of approximately $200M in its first-quarter revenue, after reporting that certain mobile chipsets and GPUs produced by the company had abnormal failure rates due to manufacturing defects, however, Nvidia did not reveal which specific products had the defect. Soon after, a class action lawsuit was filed against Nvidia, claiming the faulty chips were in certain Apple, Dell, and HP computers.
- In 2010, Nvidia reached a settlement, which would reimburse owners of affected laptops.
- In 2011, Nvidia signed a six-year, $1.5B cross-licensing agreement with Intel, ending all litigation between the two companies.
- In 2011, Nvidia released the Tegra 3 ARM system-on-a-chip, the first-every quad-core mobile CPU.
- In 2011, Nvidia acquired Icera, a baseband chip company in the UK for $367M.
- In 2013, Nvidia unveiled the Tegra 4, as well as the Nvidia Shield, an Android-based handheld game console.
- In 2013, Nvidia acquired PGI.
- In 2014, Nvidia ported Valve games Portal and Half-Life 2 to its Nvidia Shield tablet as Lightspeed Studio.
- In 2014, Nvidia started diversifying its business model beyond video games and started serving the automotive industry and mobile device industries.
- In 2016, Nvidia released the GeForce 10 Series.
- In 2017, Nvidia announced a partnership with Toyota which will use Nvidia’s Drive PX-series AI technology in autonomous vehicles.
- In 2017, Nvidia and Chinese search giant, Baidu, announced an AI partnership that includes cloud computing, autonomous driving, consumer devices, and Baidu’s open-source AI framework PaddlePaddle.
- In 2018, Google announced that Nvidia’s Tesla P4 graphics cards would be integrated into Google Cloud service’s AI.
- In 2019, Nvidia acquired Mellanox Technologies for $6.9B to substantially expand its footprint in the high-performance computing market.
- In 2020, Nvidia’s top scientists developed an open-source ventilator in order to address the shortage resulting from the global coronavirus pandemic.
- In 2020, Nvidia bought Arm from SoftBank Group for $40B.
- In 2020, Nvidia announced its plan to build the most powerful computer in Cambridge, England named the Cambridge-1, a computer that employs AI to support healthcare research.
- In 2022, Nvidia announced they are open to having Intel manufacture their chips in the future.
Step 3: Nvidia Business Model
How does Nvidia make money?
➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.
Nvidia makes money through the following business segments:
- Video games – 45%
- Data centers – 41%
- Professional visualization – 8%
- Automotive – 2%
- OEM and other – 3%
Some of their top customers include:
- Microsoft
- Dell
- HP
- AWS
- Panasonic
- Adobe
- Asus
- Unity
- Weta Digital
- Autodesk
Step 4: Nvidia News
➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.
This video sponsored by The Motley Fool outlines 3 reasons to buy Nvidia, hand over fist. Those reasons include:
- Data center market is growing, which happens to be a large segment of Nvidia’s business. One major win is Nvidia has teamed up with Microsoft to build a massive cloud AI computer.
- Faster chips are in high demand.
- The automobile industry is growing.
This article from fool.com lists 3 stocks to buy Nvidia before 2023, that can set you up for life. Those stocks include Vertex Pharmaceuticals, Mattel, and Nvidia. Nvidia is listed because the share price is down 50% while the gaming, data center, and automotive industries will continue to grow.
This article from fool.com lists 3 high-conviction growth stocks to buy before 2022 ends. Those stocks include Shopify, Nvidia, and The Trade Desk. Nvidia is listed because the video game and data center industries are expected to grow over the coming years.
This article from investorplace.com lists 7 deeply discounted stocks which include Amazon, Nvidia, Nike, Apple, Costco, Microsoft, and American Express. Nvidia is listed because AI will continue to be in high demand.
For the latest news on this stock, please login to Tykr.
Step 5: Nvidia Competition
➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.
Nvidia (NVDA)
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $159
- Fair Value: $161
- Revenue: $26B
AMD (AMD)
- Summary: On Sale
- Score: 67/100
- MOS: 90%
- Share Price: $71
- Fair Value: $360
- Revenue: $16B
Micron (MU)
- Summary: Watch
- Score: 67/100
- MOS: 0%
- Share Price: $55
- Fair Value: $55
- Revenue: $30B
Intel (INTC)
- Summary: Overpriced
- Score: 34/100
- MOS: 0%
- Share Price: $28
- Fair Value: $29
- Revenue: $79B
Taiwan Semiconductor (2330)
- Summary: On Sale
- Score: 94/100
- MOS: 87%
- Share Price: NT$471
- Fair Value: NT$1,930
- Revenue: NT$1.5T
ON Semiconductor Corporation
- Summary: Watch
- Score: 78/100
- MOS: 0%
- Share Price: $78
- Fair Value: $100
- Revenue: $6.7B
Step 6: Nvidia 4Ms
➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.
❌ MOS: Nvidia’s financials could be better. The 50/100 is okay but the MOS of 0% doesn’t show a lot of upside potential at the moment. When you take a closer look at the Net Income and EPS, they both look great year over year but the last few quarters have both declined.
✅ Meaning: Semiconductors are located in more products than we think. With Nvidia, their chips are going into video game systems, computers, data centers, cars, and more.
✅ Moat: There are a few big players in the chip industry including AMD, Intel, and Micron but due to the need for chips, most of these companies can thrive. They also have an extensive customer list including Microsoft, Dell, HP, and AWS and as long as they continue to provide innovative products, they will continue to maintain large enterprise contracts.
✅ Management: Jensen Huang previously served as a director at LSI Logic and a microprocessor designer at AMD prior to founding Nvidia in 1993. The Glassdoor rating is 4.6 and the CEO approval is 98%. Both are incredible scores and show the Huang has built a lot of respect within the company.
If you’re interested, you may complete your own 4M checklist on this stock or other stocks by logging into Tykr.
Step 7: Is Nvidia stock a good buy?
Of the 4Ms, the only M that doesn’t look good is the MOS. However, the stock has bounced between On Sale and Watch over the last 5 years which tells us it can definitely go On Sale again. As for the other 3Ms, they look fantastic! It’s important to point out that Nvidia has some big customers including Microsoft, Dell, HP, and AWS. Once you have large enterprise customers, it’s wise to continue to provide value and innovate, which Nvidia has proven to do very well over the last 30 years. There are competitors in this industry that dream of obtaining large customers like Nvidia.
I currently hold AMD in my portfolio which is another strong semiconductor company. Of the competitors to AMD, I have to say Nvidia is my favorite because of the customer list.
As of December of 2022, this stock is down over 50% from its all-time high. This is definitely a stockpiling opportunity if you own this stock because when the market rallies, Nvidia will most likely generate some big returns for investors.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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