The COVID-19 crisis has not slowed down NVIDIA (NASDAQ:NVDA) as its stock is up 78% year to date, following back-to-back quarters of robust operating results. NVIDIA's gaming segment revenue increased 27% year over year in the most recent quarter, but it's the data center business that's in the spotlight after posting growth of 80%.
NVIDIA's momentum should continue in the near term. Its new Ampere graphics processing unit (GPU) for data centers is currently in production. NVIDIA also recently completed the acquisition of data center networking provider Mellanox, which is expected to be accretive to NVIDIA's margins and profits in the next quarter. But investors have to weigh these strengths against a valuation that already factors in a lot of upside.
NVIDIA's new Ampere GPUs are a significant jump in performance over the previous generation, and it's driving the strongest demand NVIDIA has ever experienced in the data center segment. The A100 GPU based on Ampere was just announced in May and is in full production. It is up to 20 times faster for artificial intelligence workloads. Major cloud providers are adopting the chip, which contributed to NVIDIA's strong fiscal first quarter. During the latest conference call, CEO Jensen Huang said, "The demand is fantastic. It is the best ramp we've ever had." The demand was strong enough to send data center revenue above the $1 billion level for the first time. The segment made up 37% of NVIDIA's top line in the first quarter, up from 29% in the year-ago period.
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I own shares I intend to hold for many years. NVIDIA's long-term growth looks bright, given the secular demand trends from cloud computing. Plus, growth in the video game industry should support rising sales of gaming graphics cards over time. NVIDIA also has upside in the self-driving car space, where it just signed a potentially lucrative deal with Mercedes-Benz.
But if I were starting a new position, I would wait for a better entry point.
www.fool.com/investing/2020/08/01/is-nvidia-a-buy.aspx
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