1 big reason to buy NVIDIA

Investors weren’t too impressed with NVIDIAof (NASDAQ: NVDA) latest quarterly results, even though the chipmaker has seen remarkable revenue and profit growth that has exceeded Wall Street expectations.

Shares of the graphics card specialist retreated despite optimistic forecasts as investors braced for potential weakness in the company’s data center business after strong gains so far this year. But savvy investors should view any weakness in NVIDIA’s stock as an opportunity to buy more stock, as its larger company is about to step up a gear and compensate for its weakness elsewhere. Let’s see why.

Video games are on fire and a major catalyst has yet to play

NVIDIA gaming revenue grew 37% year over year to $ 2.27 billion in the third quarter of fiscal 2021, which ended October 25, 2020 The segment represented 48% of the company’s total revenue in the quarter. It benefited from an increase in demand for graphics processing units (GPUs) for desktops and laptops, as well as a spike in console chip sales. NVIDIA provides chips for Nintendothe popular Switch console.

NVIDIA also pointed out that the release of its latest RTX 30 series graphics cards based on the Ampere architecture has helped drive sales. This is not surprising, as the new GPUs have caused a huge increase in performance over their predecessors while maintaining aggressive prices. But investors should note that NVIDIA’s fiscal third quarter may not have captured the full impact of newly launched GPUs, for several reasons.

First, the RTX 30 series cards went on sale in stages in September and October. The top-of-the-line RTX 3090 was released on September 24, while the RTX 3080 went on sale on September 17. The more economical RTX 3070 was only available in October.

The second reason RTX 30 series cards failed to show their full potential in the last quarter was the shortage. The new graphics cards quickly ran out of stock after their launch thanks to huge interest from gamers and cryptocurrency miners. And it turns out that NVIDIA is still struggling to increase the supply of its latest cards, even though it’s been over two months since the RTX 3080 was released.

NVIDIA management points out that demand for its new GPUs has exceeded the company’s most optimistic expectations, and it may be a few more months before supply catches up. Thus, NVIDIA’s video game business could continue to benefit from pent-up demand in the coming months thanks to the shortage of its new chips. But at the same time, investors shouldn’t forget that the RTX 30 series cards have the potential to drive a massive upgrade cycle for millions of NVIDIA users on older cards.

NVIDIA could be at the start of a multi-year growth curve

NVIDIA CEO Jensen Huang predicts that the new RTX 30 series graphics cards could give its installed base of over 200 million gaming GPU users one of the best reasons to upgrade in over 10 years. That wouldn’t be surprising, as recent surveys have revealed that a large chunk of NVIDIA users are still using legacy chips that will need to be upgraded to run new graphics-intensive titles.

In September, a survey of graphics card users by digital video game distribution service Steam found that only around 11% of consumers were using cards from the RTX 20 series (the predecessor to the RTX 30 series). The high price tag of the RTX 20 series cards and the impressive price / performance ratio of their previous cards may have kept users from switching to the RTX series cards until now.

But with more and more games adopting technologies such as ray tracing and RTX 30 series cards delivering strong performance gains without a substantial price increase, NVIDIA now appears to be in a better position to make upgrades from his latest cards. So NVIDIA’s gaming business is unlikely to lose anytime soon – and that bodes well for this growth title, as it derives most of its revenue from this segment.