Analysis of Nvidia Stock 2022: The Money Game

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TL, DR for Analysis of Nvidia stock 2022:

  1. Even under the company’s plan to transform into an AI platform provider, the gaming sector still becomes the backbone of the business.
  2. AI still offers massive opportunities. We have metaverse awaiting along with more AI adoption.
  3. Nvidia’s competitive advantage is solid, especially after the Mellanox acquisition.
  4. The most powerful edge of Nvidia is the connection with another big name, making it the most compatible chip manufacturer in terms of gaming, AI, auto, and design.

Q: What is the most interesting point in Nvidia Full Year 2021 Report?
A: When composing an analysis of Nvidia stock 2022, we have to admit that the gaming sector is still promising even after reaching this massive scale. But do not expect more.

Analysis of Nvidia Stock should consider the contribution of business segments.
Nvidia FY revenue 2021: segment contribution.

A few years ago, Jensen Huang – in the one of company’s official presentations – told that Nvidia will transform from a gaming chips manufacturer to an AI company. And it turns out to be true. What we do not expect is the gaming sector still contributes significant growth and limelight for the company.

In the full year of 2021, This sector grew by more than 60% – the fastest in the last 5 years. The game is not dead for Nvidia. Thanks for the RTX 30 series that deliver better ray tracing and is worth the price to performance, especially in the laptop lineup.

If Nvidia keeps innovating like its RTX series, we believe that the gaming sector still become the largest contribution in the long run.

But we warn investors not to expect more of the continuation of this spectacular growth since the gaming cards demand is cyclical. The game sector is big, never die. But do not expect too much.

For your information, The gaming segment not only includes the graphics card but also the cloud gaming service: Nvidia GeForce Now. Everything is good about it: more penetration like 5G devices, smart TV, and more titles and franchise like Steam. But investor does not need to consider it due to its minuscule contribution to the gaming sector.

Q: Do Analysis of Nvidia Stock 2022 also give insight into the AI segment?
A: Metaverse opens new opportunities for Nvidia. Along with more adoption of AI, Nividia are on fire in this segment.

Officially, the metaverse is recorded in the data center segment.

Metaverse – or in Jensen Huang’s term, omniverse – is surely a GPU massive business. What do you need to visualize the virtual world as a semi-realistic universe? The graphic processing unit, of course. Nvidia is there.

And the metaverse is not about making your business look cool, it really matters. The metaverse could deliver more realistic simulation, making the production and manufacture of complex products much more cost-efficient.

Metaverse could generate a simulation of power plant construction before taking a more realistic in the real world. It also could deliver auto manufacturing process and design in the virtual world – performing trial and error before making it in the reality with a real cost. The metaverse goal end is to bring the production cost down.

The good news, it is just the beginning. According to Statista, the metaverse market potential will reach astronomically the $650 Billion level in 2030.

Meta – formerly Facebook – invest more than 6 thousand Nvidia GPUs to improve its AI and workloads as an integral part to enhance the metaverse.

The AI

The business root of the data center is AI. This is Jensen Huang’s fav. AI is the key factor in the company’s transformation into an AI platform provider. Statista estimates that in 2025, the potential market of AI is about 126 Billion. Nvidia is ready for that cake.

After the Mellanox acquisition, Nvidia is steps closer to its transformation to become the AI platform provider: The GPU, the software, and the networking devices. A good move even though it was a little pricey.

In 2021, this segment grew more than 100%.

  1. Despite the massive trend in crypto mining, investors should not hurry to buy Nvidia stock for this reason only. Officially, the crypto mining is recorded under OEM and other segments (under CMP – crypto mining processors – which contribute only 4% of total revenue in 2022).

Q: In the Analysis of Nvidia Stock 2022, Do you consider the competitor?
A: It is Mellanox story once again.

What do you compare Nvidia with?

In the gaming segment, AMD still poses a threat. But, with everything that happens in software now, compatibility with the game developers become crucial. In this term, the Nvidia connection is at a different level, leaving any competitors in the dust (call it cheat and bribe, it is up to you).

For other segments, it is surely a one-horse race.

In the AI industry GPU, it is just a monopoly, especially after the Mellanox acquisition that allows Nvidia to offer a wide array of services for clients.

The key factor here is how Nvidia makes a network with another vendor. For instance, Nvidia develops Nvidia Studio Drivers to enhance the experience for Adobe applications. This connection – the intangible asset – is a competitive advantage, since it will protect Nvidia’s market share for a long time.

Q: Is there any considerable point in Nvidia FY 2021 report?
A: The dividend, the management bonus, the debt.

Even with the increased revenue, Nvidia management did not take advantage of these circumstances. The Stock-based compensation is still at a normal level, even if it decreases as a percentage. As you can see in the figure below:

Analysis of Nvidia Stock 2022 involves management stewardship
SBC in FY 2021

Also, the management returns the money back to the investor as a dividend.

Dividend paid in 2021

The only annoying thing is the company issue some debt to finance its project – which we do not know, especially when the deal with ARM is broken.

Liabilities are sky up

Q: So, the conclusion is…
A: All segments are firing at the full cylinder, 50 earnings multiple seems not too expensive for stock.

The company has a solid position and at the same time has a strong tailwind for the growth: the massive adoption of EVs, the upcoming metaverse, and more AI exploitation. If inflation gives us a discount, it is good to add a position in this stock.