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Nvidia (NVDA -0.87%) shares have been battered over the last 12 months, with the stock plunging 50% year to date. The company has suffered from steep declines in the graphics card (GPU) market this year, which saw worldwide shipments decrease by 25.1% in the third quarter of 2022, according to Jon Peddie Research. Reduced consumer demand affected the entire PC market, fueled primarily by rises in inflation.
Considering Nvidia’s 72% market share in the discrete GPU market, investors have justifiably grown concerned for the tech giant. However, not all hope is lost for the company. Here are three things smart investors know about Nvidia.
Nvidia’s rise in the tech world is primarily owed to its dominance in the consumer GPU market, which grants it real power in the industry to take on the rising competition.
For instance, 2022 saw Nvidia’s biggest product launch since 2020 with its RTX 4000 series of graphics cards, replacing the previous generation’s RTX 3000. The launch had a rocky start, with consumers unhappy with price hikes across the lineup. The RTX 4080 started at $1,199, while its 2020 equivalent, the RTX 3080, launched at $699.
So when Advanced Micro Devices (AMD 1.03%) released its Radeon RX 7900 XTX in December at $999 and within 2% of the same power as Nvidia’s RTX 4080 16 GB, it seemed to spell trouble for the company. However, Nvidia’s leading position in the market gives it some options to combat AMD’s offerings.
Despite the Nvidia RTX 4000 series’ considerably higher prices, it reportedly only costs about $300 to manufacture its RTX 4080. And with that, the company has plenty of room to counter AMD’s competitive pricing. As it stands, the only thing AMD’s new cards have over the RTX 4000 series is value. Nvidia has the market share and dominance.
In 2017, Nvidia became the exclusive provider of graphics and processing power for one of the best-selling game consoles in history, Nintendo‘s Switch. As of November, Nintendo had sold more than 114 million Switch consoles, with just as many of Nvidia’s custom chips finding their way into mainstream use.
Numerous reports have revealed Nintendo is currently developing a sequel to the Switch that could launch as early as 2023. Since 2017, Nintendo has released a Switch console variant every two years, with a Lite version in 2019 and an OLED Switch in 2021.
If the past is anything to go by, consumers should be able to expect a new Switch in 2023. A redesigned sequel to the console would significantly boost sales as Switch owners would look to upgrade their current consoles. If that’s the case, Nividia stands to see considerable gains from its crucial position in the development of the Nintendo Switch.
While Nvidia is best known for its PC offerings, it is also home to a thriving data center business. In its third quarter of 2022, data centers made up the biggest portion of Nvidia’s revenue. The segment earned $3.8 billion, increasing 30.5% year over year and accounting for 64.6% of the quarter’s revenue.
With the cloud computing market quickly expanding, data centers are only growing in demand, and Nvidia is well-positioned to profit significantly for the long term. According to Grand View Research, the $368.97 billion cloud computing market will grow at a compound annual growth rate of 15.7% until 2030, with data centers crucial to the industry’s development.
In November, Nvidia announced a multi-year partnership with Microsoft‘s Azure to build a “massive cloud AI computer.” The collaboration will combine Azure’s supercomputing infrastructure with Nvidia’s GPUs. Considering Azure is responsible for a quickly expanding 25% market in cloud computing, the team-up could be incredibly lucrative for Nvidia’s long-term future.
Nvidia may have stumbled in 2022, but that hasn’t hampered its long-term prospects. Its price-to-earnings ratio of 65 suggests its stock isn’t currently the best value. However, Nvidia is definitely a company to watch closely as its financials will likely improve in the new year, prompting a great time to invest.
Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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