What happened
Shares of Nvidia (NVDA 3.10%) climbed on Tuesday, as investors were cautiously optimistic about improving conditions in the semiconductor industry, sending the stock up as much as 2.7%. As of 1:08 p.m. ET, the stock was still up 1.6%.
A report suggested that the ongoing shortage of graphics processing units (GPUs) could finally be easing, helping fuel the stock's rise.
So what
The shortage of GPUs, which has plagued the market for months, may finally be coming to an end according to industry watcher Tom's Hardware. A number of Nvidia's high-end processors, which have been largely out of stock at popular retailers, are slowly making their way back onto store shelves.
Nvidia RTX 3080 graphics processing unit. Image source: Nvidia.
Additional evidence that the shortage may be over is that the excessive markup users were paying for GPUs in the aftermarket on sites like eBay are beginning to come down.
This bodes particularly well for Nvidia, as the company is still early in its upgrade cycle, with a large number of gamers yet to upgrade to the most recent version of its high-end processors. As supply chain issues abate, the mix of chips is improving, and prices are returning to normal, so casual gamers may finally be willing to take the plunge.
Now what
The normalizing supply of GPUs may provide a temporary lift for Nvidia, but there are plenty of other reasons to like the stock.
Nvidia was recently included in a list of underrated stocks compiled by investment bank Evercore. The stocks identified were in the bottom 25% of index performers so far this year, despite having earnings-per-share revisions in the top 25%. Evercore noted that stocks that meet those criteria tend to outperform.
That's not all. Nvidia closed out 2021 by generating record quarterly revenue of $7.64 billion, which rose 53% year over year, fueled by record-setting sales in the gaming, data center, and professional visualization segments. Effective spending discipline boosted the bottom line, as earnings per share (EPS) of $1.18 soared 103%. Management also guided for a strong start to 2022, forecasting year-over-year revenue growth of 43% in the first quarter.
Given the obvious disconnect between its prospects and current price, Nvidia is definitely a buy.
