Competition Is Growing, but Is Nvidia Really in Trouble? This Numbers Suggests It Isn't
Key Points
According to estimates, Nvidia holds over 95% of the data center GPU market share.
The company's growth rate accelerated to 85% last quarter.
Although its market cap is high, the stock isn't all that expensive based on earnings.
Tech investors keep seeing and hearing the same headlines about tech companies making their own chips and diversifying away from Nvidia (NASDAQ: NVDA)'s high-priced products. Initially, it's easy to see why such a scenario may appear to be a troubling one, given that tech giants have the resources to invest in their own chipmaking abilities.
However, these aren't exactly new developments. And there are also many other chipmakers out there, including Broadcom and Advanced Micro Devices, that offer alternatives. But the actual numbers don't really back up the worries that Nvidia is in any serious trouble, at least not yet, anyway. Both its growth rate and its market share remain strong.
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It also raises the question of whether the stock, which is among the most valuable in the world and has a market cap of around $5 trillion, could still be a bargain buy.
Image source: Getty Images.
Nvidia continues to dominate the data center market
Tech companies are spending big money on data centers, requiring the latest and greatest chips in their build-out efforts. What's remarkable is that even with a growing number of options out there, companies still go to Nvidia. That's evident with a remarkable stat from Futurum Group, which finds that Nvidia dominates the market for data center GPUs, with more than 95% market share.
It's an astounding figure that highlights just how crucial the company's chips are. And Nvidia's growth rate certainly corroborates that, as the business has been doing more than fine in its most recent quarters.
NVDA Revenue (Quarterly YoY Growth) data by YCharts
Is Nvidia's stock a bargain buy?
Although Nvidia's market cap, which is often around $5 trillion, may seem high, the company's impressive revenue and profit growth highlight just how reasonably priced the stock is right now. Based on analyst projections, it's trading at less than 24 times its future earnings. By comparison, the average stock on the S&P 500 trades at 21 times its future profits. That means it's trading at only a slightly higher premium than the average stock within the broad index.
In the long run, Nvidia has potentially even more opportunities to tap into, even if competition does end up cutting into its growth. The massive profits and cash flow it's generating now and in recent years can enable it to invest heavily in the future in new technologies and acquisitions to drive even further growth. That's why, as a long-term investment, it may be a great addition to any portfolio.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, and Nvidia. The Motley Fool has a disclosure policy.