Few stocks generate as many headlines and column inches of discussion these days as NVIDIA (NASDAQ:NVDA). The maker of graphics processors and high-powered number-crunching chips is the center of attention right now.
What's the big deal about NVIDIA? Let's find out.
Bitcoin and other cryptocurrencies
NVIDIA's fortunes tap right into the cryptocurrency craze.
According to Google Trends, the search term "bitcoin" actually passed "apple" in popularity in December of 2017. That's despite the fact that Apple interest tends to surge during the holiday shopping season, not to mention the fruit itself attracting some interest from pie bakers and whatnot.
Ironically, NVIDIA's processors are not particularly useful for mining bitcoin. The leading cryptocurrency relies on algorithms that are best performed by highly specialized chips, so-called ASIC processors designed specifically for bitcoin mining and absolutely nothing else. ASICs can produce trillions of bitcoin hash calculations per second while consuming relatively low amounts of electric power, while NVIDIA's latest and greatest chips stop at a few billion hashes per second. It's mathematically impossible to cover the power bills for generating bitcoins through NVIDIA chips, even after the recent surge in coin prices.
But some cryptocurrencies were designed around different algorithms, specifically chosen to allow enthusiasts to make cost-effective use of their graphics cards. When you needs lots and lots of memory to store temporary data, ASIC chips can't keep up with modern graphics processors and their gigabytes of fast memory chips. The NVIDIA GeForce GTX 1070 Ti card, sporting 8 gigabytes of cutting-edge memory and a good-enough processor, can earn its keep by crunching Ethereum or Litecoin algorithms all day long.
So the connection between NVIDIA and bitcoin is somewhat misleading. The company's products are better used to produce different cryptocurrencies that receive far less headline attention right now. Still, cryptocurrency mining is making it tough to find NVIDIA's best cards on store shelves as mining enthusiasts snap them up for money-making purposes.
Riding the crypto surge, while also selling plenty of chips to gamers and artificial intelligence shops, has NVIDIA's financial fortunes soaring. Top-line sales nearly doubled over the last three years while free cash flows more than tripled, and the stock has exploded in response:
Massive stock gains plus that cryptocurrency connection equals a whole lot of interest from media, investors, and the public at large. Everybody wants to know about the next big thing, and NVIDIA is a walking definition of exactly that right now.
Looking into 2018 and beyond, the company is moving beyond its cryptocurrency platform to support automotive computing and data center systems in a big way. The stock might take a breather as NVIDIA's business model evolves, but this is still a solid business for the long haul.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AAPL and Nvidia. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.