In a recent episode of "The Rank" on Fool Live, three of our top contributors discussed their highest-conviction stocks for 2022. In this clip, recorded on Jan. 10, Fool.com contributor Danny Vena explains why Nvidia (NVDA 1.88%) is one of his top stocks to buy in 2022, and why he still thinks it has lots of upside potential from here.
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Danny Vena: Nvidia is a company that many people are familiar with. This is a company that is the leading provider of graphics processing units or GPUs for gaming computers. Now, GPUs started out as being the humble ship that's used by high-end gamers, but it has since expanded its role so let's talk a little bit about who Nvidia is and what they do.
Now, Nvidia is the pioneer of the modern GPU. Other graphics processors have been around as early as the mid-'70s. Nvidia introduced the modern graphics processor in 1999 and its secret sauce is the ability to do what's called parallel processing or it can conduct a multitude of complex mathematical calculations simultaneously, which is what allows the company to produce these lifelike graphics in video games. Now, part of the reason that I'm so excited about Nvidia is the fact that they dominate the GPU market with about 83% of the discrete desktop GPU sales according to Jon Peddie Research.
Now, this is just a jumping-off point, however. I mean, if you think about all of the great companies in the world and primarily they have one gigantic dominant product and then they expand off into other areas. Think about what Meta (META 3.49%), formerly Facebook, has done. Think about what Google (GOOG 0.54%) (GOOGL 0.51%) has done. This is where Nvidia got its start, was in gaming chips. But since then, Nvidia, after doing tons of research found that the parallel processing capabilities of their GPUs also were uniquely suited to serve the needs of artificial intelligence and cloud computing.
So as a result of that, Nvidia GPUs are found in all of the world's largest data centers and cloud computing operations. Now, as a result of this, if you look at their financial results, in the third quarter, they generated revenue of $7 billion up 50% year-over-year. That included record gaming revenue of $3.2 billion up 42%, record datacenter revenue, $2.94 billion up 55%. Their gross margin is ticking higher from just under 63% a year ago to just over 65% now and net income was $2.46 billion up 84%.
Now that's accelerating a lot faster than what the revenue is and the reason for that is because they have leverage, they're building, not just these GPUs, but hardware and software combinations that they can sell directly to these data centers, to these cloud computing operations and as a result of that Nvidia has been soaring and all of that research is funded by sales of its humble gaming chips. I'm really excited about Nvidia.
I think that the move to cloud computing and the move to AI is going to continue not only this year but for a decade or more and Nvidia has the best mousetrap out there for helping in those areas. Nvidia is one of my highest conviction stocks. I have about a half a dozen of them out of the 60-plus in my portfolio and Nvidia is definitely in the top five.
