Nvidia (NVDA -3.33%) stock has started flying once again, with shares of the graphics card specialist gaining 32% since March 14. The stock is now trading at 72 times trailing earnings, which is higher than the multiple it was trading at in the middle of March. Does this mean that investors who didn't take advantage of the pullback in Nvidia stock have missed an opportunity to buy this fast-growing tech company? Let's find out.
Nvidia is expensive, but the valuation remains attractive
There is no doubt that Nvidia remains an expensive stock to buy. However, investors looking for a growth stock should note that the graphics card specialist was trading at a whopping 90 times earnings last year. Going back to 2020, Nvidia remained expensive with a price-to-earnings ratio of 85. It was only in 2019 that Nvidia's valuation was at a relatively cheap 60 times earnings.
NVDA PE Ratio data by YCharts
Since early 2020, Nvidia stock has jumped a massive 400%. The stock handsomely rewarded investors who had bought at 60 times earnings back in 2019. So, growth-oriented investors still have an opportunity to buy the stock before it gets even more expensive due to multiple upcoming catalysts that should help the company maintain its outstanding growth pace.
Hot tech trends should ensure rapid long-term growth
At Nvidia's recent developer conference, the company revealed new products that support its aggressive pursuit of fast-growing markets such as artificial intelligence (AI)-enabled data centers, autonomous vehicles, and digital twin applications.
Nvidia unveiled the Grace Central Processing Unit (CPU) Superchip, which will target the high-performance computing (HPC) market and AI data centers. Nvidia says that this chip combines two interconnected server CPUs, and is capable of "providing the highest performance and twice the memory bandwidth and energy-efficiency compared to today's leading server chips."
The chipmaker also said that leading players in the HPC, supercomputing, cloud, and hyperscale markets are already working with Nvidia to integrate the Grace Superchip into their applications. The product should be available in the first half of 2023. This move will be huge for Nvidia, marking its entry into a market where the company is currently absent.
By 2023, the server CPU market is expected to generate $19 billion in revenue. The space is currently dominated by Nvidia rivals Intel and AMD. According to Mercury Research, Intel controlled nearly 90% of the server CPU market at the end of 2021, with AMD holding the remaining market share. Nvidia's foray into this space is going to unlock a massive opportunity for the chipmaker that has the potential to substantially boost its revenue.
At the same developer conference, the chipmaker announced that its automotive pipeline had increased to $11 billion, a sizable increase from the $8 billion it was sitting on a year ago. This pipeline could soon translate into real revenue: the company's self-driving platforms are now in production and BYD, the world's second-largest electric vehicle manufacturer, announced it will build its next-generation fleet on Nvidia's DRIVE Hyperion architecture.
BYD is just one of many companies tapping Nvidia's autonomous driving system to power their self-driving vehicles. With these partnerships, it wouldn't be surprising to see the chipmaker's automotive business gain robust traction in the future. By expanding this business segment, Nvidia could generate substantial revenue: last fiscal year, automotive brought in $566 million for the company, accounting for only 2% of total revenue.
Image source: Getty Images.
Nvidia OVX was another key product revealed at the conference that could supercharge long-term company growth. Nvidia has described OVX as being "purpose-built to operate complex digital twin simulations" of buildings, factories, warehouses, autonomous vehicles, or entire environments.
Digital twins will be the building blocks of the metaverse, as the technology creates virtual copies of physical objects and spaces such as offices, schools, colleges, stadiums, and other locations. As the metaverse aims to connect people within virtual 3D spaces, the digital twin market is going to expand at a terrific pace in the future. A third-party estimate projects that the current $10.27 billion digital twin market could grow at an annual pace of 35% through 2027.
Still a good buy
Nvidia's revenue shot up 61% in fiscal year 2022 to $26.9 billion. Adjusted earnings were up 78% to $4.44 per share. So far, the video gaming and data center markets have been the pillars of this terrific growth, and they are likely to help the company maintain its momentum in the long run. And now that the company is ready to tap into more lucrative markets, its revenue and earnings could grow substantially over the long run.
Investment bank Cowen (COWN) estimates that Nvidia could generate $140 billion in revenue and $28 per share in earnings by 2028. That would be a huge jump over last year's numbers, and indicates that Nvidia could remain a top growth stock for a long time to come.
