Nvidia’s gaming and data center business
Nvidia expects to gain from its gaming and data center business in 2020. The company’s data center segment is growing rapidly and adds to its gross margins. The gaming business is Nvidia’s largest segment, but its revenues were hit hard due to the loss of cryptocurrency demand in 2018. Nvidia’s gaming revenues declined 6% YoY in the third quarter, but the rate of decline improved from the previous quarter. I think that Nvidia’s gaming business should benefit from 7nm technology. The company’s Turing ray-tracing software should also enhance the gaming experience.
In the fourth quarter, Nvidia’s gaming revenues increased by 56.3% YoY to $1.49 billion. The sales from the company’s data center segment rose 42.6% YoY to $968 million in the fourth quarter.
According to a report from TheStreet, the demand for high-performance laptops will likely rise in the coming months. More offices are allowing employees to work from home amid the coronavirus pandemic. In such a scenario, Nvidia is positioned to provide value-added products and stand-out software services. Investors could consider Nvidia stock amid this volatile and uncertain scenario.
You can’t ignore that the coronavirus will likely have a negative impact on the company’s gaming and data center businesses in the near term. During the fourth-quarter conference call, Nvidia CFO Colette Kress said, “China accounts for about 30% of gaming sales and the outbreak could depress gaming sales by low double-digits sequentially,” as reported in MarketWatch. She also said, “While data-center sales from China tend to vary from quarter to quarter and are more difficult to determine.”
Nvidia expects the coronavirus to dent its revenues in the upcoming quarter. For the first quarter of fiscal 2021, the company has slashed its sales outlook by $100 million amid uncertainty related to the COVID-19 outbreak. Nvidia expects its revenues to be $3.00 billion (plus or minus 2%) in the first quarter.
Wall Street analysts expect Nvidia’s sales to grow by 34.5% YoY to $2.99 billion in the first quarter. For fiscal 2021, analysts expect sales growth of 20.5% YoY compared to a decline of 6.8% YoY in fiscal 2020.
Analysts’ recommendations on Nvidia stock
Among the 41 analysts covering Nvidia, 32 recommend a “buy,” six recommend a “hold,” and three recommend a “sell.” The mean target price of $296.43 implies a 39.4% upside from the closing price on Monday.
I think that Nvidia stock is trading at low levels due to the stock market crash amid the coronavirus pandemic. However, the stock can navigate this turbulent scenario and recover when the markets stabilize. The company has outperformed the broader markets in the past. As a result, I think that Nvidia stock is a great long-term bet.