Nvidia's Better-Than-Expected Update

Nvidia's Better-Than-Expected Update

over 3 years ago2 mins

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Nvidia – which makes computer chips for everything from gaming equipment to data storage – announced leveled-up second-quarter results last week. Psst, Nvidia – your joystick is showing… 🕹

What does this mean?

The tech hardware giant trounced investors’ expectations, with sales up 50% on the same time last year, and profit up 76%. Put those high scores down to all the lockdowns that’ve kept people at home: demand for data storage and computing equipment soared as bedrooms became offices, and for games consoles as weekends became… something.

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And Nvidia doesn’t think it’ll be game over any time soon: the company’s expecting a strong second half of the year for its gaming segment, thanks to Sony’s soon-to-be-released PlayStation 5 and Microsoft’s Xbox Series X 👾 That might partly explain why the company’s revenue prediction for this quarter was 12% higher than investors were expecting.

Why should I care?

While US stocks have only risen 4% on average this year, Nvidia’s has doubled. That’s probably because it’s been reporting the kinds of positive sales trends other major companies could only dream of. Investors shouldn’t necessarily expect its stock to keep rising, mind you 🤔 If you compare Nvidia’s share price to next year’s forecasted earnings per share, you’ll get a price-to-earnings ratio of 55 times. In other words, Nvidia’s share price is 55 times higher than the per-share profit it’s predicted to make next year. And if you compare that to US stocks’ roughly 20 times price-to-earnings ratio, you might be looking at a current valuation that already reflects a lot of future good news.

Source: Google Finance
Source: Google Finance

Nvidia also signed a deal with German car brand Mercedes-Benz last week: it’ll be incorporating its technology into every new Mercedes from 2024 onwards. As carmakers shift toward electric vehicles – oh hey, Tesla – and eventually toward self-driving cars, demand for computing power in cars is likely to keep rising, potentially to Nvidia’s benefit.

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