NVIDIA (NASDAQ: NVDA)
Quality Value Investing Research Report | Updated Coverage | February 2024
Summary:
Quality Value Investing first covered NVIDIA in August of 2023 as a ‘sell’ from the overpriced shares of a quality company.
The stock rose exponentially as the semiconductor enterprise became a leading contributor and market story in the burgeoning artificial intelligence and machine learning space.
However, NVIDIA remains a quality enterprise searching for a reasonable stock price in this updated research report.
The asymmetric quality and value might benefit cautious investors with discretionary dollars and a lower-cost basis. Still, this momentum growth story could ravage the ever-present cadre of stock market gamblers.
When referencing this research report, access your Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on February 27, 2024, and intended for illustration only.
The 44 holdings in the QVI Real-Time Stock Picks have collectively achieved alpha for 15 years by focusing research and analysis on a company’s current wealth and its share price’s present value. In other words, just the facts without unreliable predictive analysis typical of the buy side or the business modeling overkill of the sell side Wall Street analysts.
In this updated QVI Research Report, we’ll look at the Expanded Real-Time Stock Picks information technology sector holding NVIDIA Corporation to see if it continues to meet Quality Value Investing’s active portfolio inclusion criteria based on our checklist analysis of the business’s current wealth and its stock’s present value.
NVIDIA: Company Current Wealth
To uncover the current wealth of the company, QVI defines the value proposition, measures returns on management, and assesses enterprise downside risks.
Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including its economic moat.
NVIDIA NVDA 0.00%↑ is a dividend-paying large-cap stock in the information technology sector’s semiconductors industry. NVDA was added to the QVI Real-Time Stock Picks on August 15, 2023, at a split and dividend-adjusted $439.36 a share.
NVIDIA Corporation provides graphics and compute and networking solutions in the United States, Taiwan, China, Hong Kong, and internationally.
The Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU or vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building and operating metaverse and 3D internet applications.
The Compute & Networking segment comprises Data Center computing platforms and end-to-end networking platforms, including Quantum for InfiniBand and Spectrum for Ethernet; NVIDIA DRIVE automated-driving platform and automotive development agreements; Jetson robotics and other embedded platforms; NVIDIA AI Enterprise and other software; and DGX Cloud software and services.
The company’s products are used in gaming, professional visualization, data center, and automotive markets. It sells its products to original equipment manufacturers, original device manufacturers, system integrators and distributors, independent software vendors, cloud service providers, consumer internet companies, add-in board manufacturers, distributors, automotive manufacturers, tier-1 automotive suppliers, and other ecosystem participants.
NVIDIA was incorporated in 1993 and is headquartered in Santa Clara, California, USA.
Economic Moat
Alpha-rich investors target companies with clear competitive advantages from their products or services. An investor can streamline the value proposition of an enterprise with an economic moat assignment of wide, narrow, or none.
For example, Morningstar assigns NVIDIA a wide moat rating.
QVI’s value proposition elevator pitch for NVIDIA:
NVIDIA offers unrivaled graphics performance for gamers and is now strategically full-on in “solving the world’s visual computing challenges” with world-class artificial intelligence semiconductors.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit NVIDIA’s investor relations webpage and its most recent Form 10-K Annual Report submitted to the US Securities and Exchange Commission or SEC.
QVI's value proposition rating for NVIDIA: Bullish.
Returns on Management
QVI Research Report’s returns on management or fundamentals section measures the performance strength of the company’s senior executives by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the chart below, NVIDIA had spectacular trailing three-year annualized mid-double-digit revenue growth, smashing the +4.39% median growth of the information technology sector. In addition, the company had a topline growth of +125.85% for the most recently reported twelve months.
Farther down the income statement, NVIDIA had a three-year, double-digit net profit margin, far outperforming the sector’s median net margin of +2.47%.
Returns on Equity and Invested Capital
NVIDIA’s senior management produced a three-year mid-double-digit return on equity or ROE, nearly tripling QVI’s targeted threshold and well ahead of the sector’s median ROE of 2.42%.
Stock buyback programs often elevate ROE. For example, NVIDIA’s board of directors approved $25 billion for repurchases in August 2023, which led to a $2.66 billion repurchase in January. Are they buying back the stock at value prices for its shareholders?
NVIDIA’s three-year return on invested capital, or ROIC, doubled QVI’s threshold and embarrassed the sector’s median ROIC of 2.45%. In addition, NVIDIA’s ROIC exceeded its weighted average cost of capital, or WACC, of 17.94%, demonstrating that its senior executives are above-average capital allocators but with high capital costs. (Source of WACC: GuruFocus)
Dramatic three-year revenue growth and sector-trouncing profit margins and returns on equity and invested capital suggest exemplary performance by NVIDIA’s management team in Silicon Valley.
QVI’s fundamentals rating for NVIDIA: Bullish.
Next, we’ll look at the company’s returns on management chart, enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.