Should You Buy NVIDIA (NVDA) Stock in 2023? An Investor‘s Guide

Dear investor,

You may be wondering if now is a good time to pick up shares of NVIDIA Corporation, the leading graphics chipmaker. While the stock has rebounded partially from its lows, it remains nearly 50% off its all-time peak from 2021.

As an experienced tech investor and market analyst, I have closely followed NVIDIA for over a decade. I believe growth-oriented investors with longer time horizons should absolutely accumulate NVDA stock at current levels.

Read on as I outline the bull case for buying NVIDIA built upon its differentiated technology, leadership status in massive growth arenas, stellar financial performance and reasonable valuations after this year‘s sell-off.

Overview – How NVIDIA Became a Tech Juggernaut

Let‘s start with some background on why NVIDIA has emerged as a semiconductor powerhouse. Established in 1993, NVIDIA began as a specialized maker of graphics processing chips for gaming PCs and consoles. Their GPU technology enabled much faster rendering for 3D videogames.

Behind the vision of charismatic CEO Jensen Huang, NVIDIA continued pioneering better graphics cards for hardcore gamers year after year, culminating in giant leaps like their GeForce 1080 Ti. Along the way, NVIDIA utilized savvy software investments to bolster their chips‘ efficiency through proprietary technologies like CUDA parallel programming.

The seeds for NVIDIA‘s recent success were planted with their heavy focus on powering better gaming visuals through pure hardware and software competence. Fast renderings require staggering computational horsepower – exactly the capabilities needed for complex AI algorithms leveraging neural networks.

Luckily for NVIDIA investors, Huang smartly steered their GPUs to target surging data center demand to accelerate machine learning models cost-effectively using their graphics chips. As AI adoption began booming in the cloud, NVIDIA seized a first-mover advantage they still enjoy today.

Let‘s analyze the numbers validating NVIDIA‘s dominance.

By the Numbers – Quantifying NVIDIA‘s Lead

While invented primarily for videogames, NVIDIA‘s GPUs now generate over 50% of revenue outside gaming – that diversification lowers risk while expanding TAM. As this table shows, NVIDIA has maintained a 5 year lead in discrete graphics chip performance over rivals:

Discrete GPU Performance Leadership

Across both gaming and data center applications, NVIDIA consistently outpaces rivals in delivering faster acceleration. As AI adoption grows, performance advantages compounded over years matter immensely to deliver state-of-the-art user experiences – an area NVIDIA obsesses over.

Looking at PCs specifically, the following chart highlights how NVIDIA has rapidly eaten market share from Intel and AMD to reach nearly 85% discrete GPU share. This complete domination of visual computing stems from their single-minded specialization.

Global Discrete GPU Market Share

Meanwhile in data centers, NVIDIA grew its specialized AI accelerator share from virtually 0% to over 90% in under a decade per analysts. Top cloud providers like Azure, AWS and Google Cloud now mostly deploy NVIDIA chips for machine learning training/inference.

Let‘s review NVIDIA‘s income metrics next.

Stellar Growth Across Key Financial Metrics

Beyond market share dominance, NVIDIA has translated its technology advantages to tremendous business success.

For context, NVIDIA generated $6 billion in total revenue back in 2016. Flash forward to this past year, and annual revenues have exploded to $28.6 billion after roughly 20% CAGR since 2016.

Fueling these exponential revenue gains, NVIDIA‘s Gaming segment increased by 6x recently to $14 billion. Meanwhile the Data Center category grew even quicker from $650 million in 2016 to over $14 billion. Both now contribute half of total sales.

With operating margins doubled to nearly 50% over the past decade through platform leverage, NVIDIA converts revenue surges into enormous cash generation – validating shrewd capital allocation.

Let‘s examine precise figures across key financial metrics:

Revenue (Annual)

Net Income

Operating Margins

This tremendous growth in financials has justly translated to market-beating returns for shareholders. $1000 invested in NVIDIA five years ago would now be worth nearly $7000 – multiplying 7 fold or 85% annually.

Yes, NVIDIA has seen its valuation multiples compress over the past year amidst the broader tech correction. However, modest forward P/E multiples near 30 now offer attractive entry points for such a world class compounder.

In the next section, let‘s analyze NVIDIA‘s growth trajectory going forward across its business segments.

Bright Growth Outlook Despite Macro Concerns

While skeptics question whether NVIDIA‘s best days remain ahead given economic uncertainty, the numbers point to strong growth persisting for multiple reasons:

1. Gaming – With over 500 million gamers added since 2018, NVIDIA enjoys strong tailwinds in its core gaming franchise which makes up 46% of sales. The launch of its RTX 40 series chips will drive upgrades. Crypto mining dampened recent gaming revenues but pent-up demand exists.

2. Data Center – Per MLPerf benchmarks, NVIDIA‘s flagship A100 GPU performs machine learning training/inference 10-25x quicker than prior platforms, underscoring their breakneck pace of data center innovation. Major cloud providers plan to double capital expenditures over the next few years to build out AI infrastructure heavily reliant on NVIDIA.

3. Automotive – From AI cockpit infotainment to self-driving capabilities, NVIDIA is becoming essential technology for next-gen electric and autonomous vehicles. This segment already generates $500M+ in sales today but expected to balloon to billions as software-defined cars proliferate.

4. Omniverse – NVIDIA‘s "metaverse for engineers" platform combining simulation, collaboration and AI could emerge as the de facto development suite for autonomous machines across industries. Still in early days, Omniverse introduces massive cross-sell opportunities.

With four multibillion verticals firing on all cylinders, NVIDIA expects to grow revenues at a brisk 25-30% CAGR through 2025 organically. Margin expansion potential also remains thanks to operating leverage.

Factoring in economic risks, assume conservatively a 20% annualized top-line expansion and steady 20% bottom line gains moving forward. Such best-in-class output merits a premium valuation.

Now let‘s examine how NVIDIA stacks up against semiconductor rivals.

Semiconductor Leadership – Comparing Core Financial Metrics

While NVIDIA stock isn‘t cheap optically trading at nearly 40x forward EPS still, this premium valuation begins to look more reasonable factoring in vastly faster growth compared to peers.

Observe below how NVIDIA bests semiconductor competitors across critical performance yardsticks:

Clearly NVIDIA is in rarified air relative industry stalwarts AMD and Intel when comparing expansion rate, profitability and stock multiples.

Advanced Micro Devices comes the closest from a technology perspective but faces more competitive pressure. Intel hopes to turn itself around but continues ceding market share after long missteps. Qualcomm, Micron, Texas Instruments etc also pale in growth metrics next to NVIDIA.

In my view, NVIDIA justifies premium multiples because computing platforms are winner-take-most markets where the top dog ends up with the majority profits long-term. We‘re already witnessing that consolidation play out.

Now I‘ll conclude with my investment recommendation.

Verdict: Accumulate NVDA Stock for Long-Term Growth

To summarize, here are 5 compelling reasons growth investors should capitalize on NVIDIA‘s roughly 50% discount from all-time highs to open or expand positions:

1. With peerless AI acceleration capabilities cultivated over 15 years, NVIDIA powers paradigm shifts in gaming, cloud, autonomous machines and the metaverse. Their GPU moat remains wide.

2. Staggering 2-4x faster compute speeds over rivals ensures NVIDIA stays atop evolving workloads including synthetic data creation, recommendations and predictions. Hardware drives software breakthroughs.

3. Four multibillion verticals focused on visual computing all have open-ended growth runways as graphics/AI proliferate across industries in the coming decade tailwinding revenues higher.

4. Despite transitory crypto/gaming headwinds, NVIDIA still grew sales well in its latest quarter showcasing resilience. Guidance expects solid 25-30% growth for the foreseeable future.

5. Down ~50% from highs, risk-tolerant investors finally have a chance to buy NVIDIA stock at reasonable ~35x forward earnings and sub-20 PEG ratio for a world-beater compounder.

In closing, I recommend accumulating NVIDIA shares on any further dips as part of a diversified portfolio tilted towards disruptive tech. Core positions should deliver significant outperformance over the next 5-10 years timeframe.

What indicators should you monitor going forward? Beyond product release cycles, keep an eye on gaming/hyperscale spending trends along with earnings beats. As long as data center and auto demand trends stay healthy with gaming stabilizing, NVIDIA‘s outlook remains bright.

I hope this analysis gives you confidence in building an NVDA stake at attractive valuations. Please reach out with any other questions!