It’s generally a good idea for investors to be a bit skeptical of the valuation of a stock that is up nearly 1,000 percent in only three years. However, when it comes to Nvidia Corporation (Nasdaq: NVDA), Loup Ventures analyst Gene Munster says the company’s unique positioning may provide even more upside for investors in the years ahead.
As time goes on, Munster says Nvidia will be less dependent on gaming revenue and will transition its business to other high-growth markets. Today, gaming accounts for 57 percent of Nvidia’s revenue, but Munster estimates that percentage will shrink to only 41 percent by 2023.
[See: 7 of the Best Stocks to Buy for 2018.]
At the same time, Loup expects Nvidia’s impressive overall revenue growth to continue. Nvidia has reported revenue growth of between 32 and 56 percent in each of the last five quarters, and Munster says Nvidia will continue to grow its revenue by a compound annual rate of 23 percent over the next five years.
Growth investors typically seek companies that are on the cutting edge of markets with long-term potential. Munster says he sees four of these markets that will serve as long-term catalysts for Nvidia.
First, he anticipates Nvidia will continue to play a large role in the next generation of gaming growth, which will include a shift to online gaming, a rise in the popularity of esports and an increase in social gaming interactions.
[See: 7 Overlooked Large-Cap Dividend Stocks.]
Second, Munster says Nvidia’s data center business will be in high demand as companies increase their reliance on AI and deep learning.
Third, Munster says the autonomous vehicle market will be even larger than many investors realize. He estimates that 90 percent of vehicles on the road by 2040 will have level 4 or 5 automation, which will require advanced platforms such as the Nvidia Drive PX.
Finally, Munster says Nvidia has “planted seeds” in a number of fledgling industries with huge upside, including augmented and virtual reality and cryptocurrency mining.
“While shares of NVDA have performed exceptionally well this year…we think there is further upside given Nvidia’s foundational exposure to frontier technologies,” Munster says.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
Nvidia investors certainly need to have faith that the company can continue to deliver impressive growth numbers to justify buying the stock at its current price. Nvidia shares trade at a steep forward price-earnings ratio of 45.5.
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It’s Not Too Late to Buy Nvidia Corporation (NVDA) Stock originally appeared on usnews.com
