Whatās Going On Here?Nvidia ā which makes computer chips for everything from gaming equipment to data storage ā announced leveled-up second-quarter results last week. Psst, Nvidia ā your joystick is showingā¦ What Does This Mean?The tech hardware giant trounced investorsā expectations, with sales up 50% on the same time last year, and profit up 76%. Put those high scores down to all the lockdowns thatāve kept people at home: demand for data storage and computing equipment soared as bedrooms became offices, and for games consoles as weekends becameā¦ something.
And Nvidia doesnāt think itāll be game over any time soon: the companyās expecting a strong second half of the year for its gaming segment, thanks to Sonyās soon-to-be-released PlayStation 5 and Microsoftās Xbox Series X. That might partly explain why the companyās revenue prediction for this quarter was 12% higher than investors were expecting. Why Should I Care?For markets: When the chips are up...
While US stocks have only risen 4% on average this year, Nvidiaās has doubled. Thatās probably because itās been reporting the kinds of positive sales trends other major companies could only dream of. Investors shouldnāt necessarily expect its stock to keep rising, mind you. If you compare Nvidiaās share price to next yearās forecasted earnings per share, youāll get a price-to-earnings ratio of 55 times. In other words, Nvidiaās share price is 55 times higher than the per-share profit itās predicted to make next year. And if you compare that to US stocksā roughly 20 times price-to-earnings ratio, you might be looking at a current valuation that already reflects a lot of future good news.
The bigger picture: All Merc, no play.
Nvidia also signed a deal with German car brand Mercedes-Benz last week: itāll be incorporating its technology into every new Mercedes from 2024 onwards. As carmakers shift toward electric vehicles ā oh hey, Tesla ā and eventually toward self-driving cars, demand for computing power in cars is likely to keep rising, potentially to Nvidiaās benefit. | 