Unless you're an avid gamer, you wouldn't call Nvidia Corp. a household name. The $32 billion chipmaker is, however, the top performing S&P 500 stock of the past two years.
Operating in the less sexy side of the technology industry, Nvidia has discovered organic growth that's become elusive for so many other companies its size -- and it may still have room to run.
Nvidia specializes in graphics processors that make computer games such as "Call of Duty: Black Ops 3" more lifelike. Its success there allowed CEO Jen-Hsun Huang, who co-founded Nvidia in 1993 when he was 30 years old, to funnel investment into two other markets: data centers and automotive computers. The strategy has been a winner: After the close of trading Thursday, the company reported second-quarter results that beat analysts' forecasts, something it's done in nine of the previous 10 quarters. Sales surged 24 percent from the year-ago period, and adjusted earnings per share climbed 56 percent.
Nvidia's shift to higher-end components is helping it weather the shrinking market for personal computers. Its diversification into data centers and vehicles should also help with the seasonality of the gaming division, and it has the ability to gain market share in both even though competition will be stiff.
Shares of Advanced Micro Devices, one of Nvidia's largest rivals, are also performing well of late as the $5.2 billion company tries to take share from Nvidia in gaming chips. But AMD has long been unprofitable and had to burn through cash (although it did earn $69 million of net income in the latest quarter). And based on Ebitda estimates for this year, its stock is far more expensive than Nvidia's.
In other words, there are certainly reasons for Nvidia to remain the favorite among investors.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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