Shares of NVIDIA (NASDAQ:NVDA) more than tripled over the past 12 months, fueled by robust growth in its GPU business and seven straight quarters of beating top and bottom line estimates. But that blistering rally also lifted NVIDIA's trailing P/E to 48, which is well above the industry average of 26 for semiconductor makers.
Since the market is already at historic highs, investors might be wondering if it's finally time to sell and take profits on NVIDIA. But before doing so, they should note that the following three catalysts could propel the stock even higher over the next few quarters.
1. Its new low-end GPUs
In the discrete GPU market, NVIDIA is generally considered the high-end player, while its main rival AMD (NASDAQ:AMD) targets the mid-range and low-end markets. That's why it wasn't surprising when AMD launched low-end "VR ready" GPUs last year to counter NVIDIA's pricier cards and capitalize on sales of PC-based headsets like the Oculus Rift.
However, it was surprising that NVIDIA retaliated with new low-end cards to challenge AMD. In late 2016, NVIDIA introduced the GTX 1050 ($139) and GTX 1050 Ti ($109) to counter AMD's latest RX 400 series cards, followed by the GT 1030 ($75) earlier this year. The GTX 1050 Ti notably stole the title of the "cheapest VR ready" card from AMD's RX 460 ($170), while the GTX 1050 and GT 1030 are being marketed for popular e-sports titles like Overwatch.
Between the first quarters of 2016 and 2017, research firm JPR reports that NVIDIA's share of the discrete GPU market rose from 70.5% to 72.5%. AMD's share dropped from 29.5% to 27.5%. NVIDIA's new low-end GPUs could help it steal even more market share from AMD, and bolster its gaming GPU revenue -- which rose 49% annually and accounted for 53% of its top line.
2. Its upcoming next-gen GPUs
But that doesn't mean that NVIDIA is abandoning the high-end market. AMD will likely gain a slight edge later this year when it launches its next-gen Vega cards to challenge NVIDIA's current-gen Pascal cards, but NVIDIA plans to counter Vega afterwards with its own next-gen Volta cards.
Mainstream Volta cards probably won't arrive until next year, but NVIDIA recently gave the public a glimpse of the technology in its Volta-based Tesla V100 GPU for data centers. The Tesla V100 has 21 billion transistors and 5,120 CUDA cores, which dwarfs the Pascal-based Tesla P100, which has 15 billion transistors and 3,840 CUDA cores.
NVIDIA's initial rollout of Volta-based data center GPUs should boost its data center revenue, which soared 186% annually last quarter and accounted for 21% of the chipmaker's top line. Volta-based GPUs should also lift NVIDIA's gaming GPU revenues once they reach mainstream consumers next year.
3. The growth of Tegra
NVIDIA's ARM-based Tegra CPU, which previously failed to crack the smartphone market, has evolved into an 800-pound gorilla in the connected car market, where it powers infotainment and navigation systems in high-end vehicles.
That firm foothold has enabled it to launch two generations of Tegra-powered driverless "supercomputers" (Drive PX and Drive PX 2), which are essentially turnkey solutions for producing autonomous vehicles. That business has some big backers, including Tesla Motors, Toyota, BMW, Mercedes-Benz, and Audi. That helped NVIDIA's automotive revenue rise 24% annually last quarter and accounted for 7% of its total revenues.
But the Tegra chipset also has growth opportunities beyond connected cars. Nintendo, for example, chose a Tegra chipset to power its new Switch console. Based on the growing popularity of the hybrid console, RBC Capital Markets analyst Mitch Steves believes that sales of Tegra chips for the Switch could boost NVIDIA's top line by up to $400 million (5% of its projected revenues) this year.
The key takeaways
NVIDIA stock might look pricey at current levels, but investors should realize that the chipmaker still has major catalysts ahead. Analysts expect NVIDIA's revenue and earnings to respectively rise 19% and 20% this year -- so its business probably won't peak anytime soon. Therefore, the stock might dip or stagnate in the near term, but I believe that it still has plenty of room to run over the long term.