A must-read report if you are looking to invest in NVIDIA (NASDAQ: NVDA) stock

5G is the latest wireless network technology that comes with low latency. In simple words, we can say that it is the fifth-generation wireless network that will offer streaming services nearly 100 times faster than the existing 4G network. 5G will enable users to download heavy files in a blink of an eye, besides intelligently routing the signals where they are needed.

Many companies have been working to support the roll-out of the 5G network on a large scale. Overall, we can divide those companies into two main categories including semiconductor manufacturers, or chipmakers, and makers of basic equipment. To elaborate further, basic equipment includes things that are needed to support the 5G networks such as 5G small cells and antennas among many other things.

NVIDIA is a potential 5G beneficiary

Many companies could benefit from the massive opportunities offered by 5G roll out across the globe. NVIDIA Corp. (NASDAQ: NVDA) is one of those stocks that could capitalize on the 5G revolution.

NVIDIA is primarily engaged in developing graphics processing units (GPU), which are famous around the world for supporting high-end video games. However, its GPUs are also used in several other applications, including 5G. Many telecoms and equipment manufacturers are already using GPUs for 5G testing and deployment.

Moreover, high-end video games played by users over the cloud also need GPUs to ensure smooth streaming over a network. The demand for NVIDIA GPUs is expected to increase in the coming years after the mass deployment of the 5G network around the world. The reason is users will prefer playing heavy games on the cloud supported by GPUs, as this will end the need for maintaining or buying expensive hardware for running those games.

Cloud gaming has emerged as an exciting innovation in the modern world. The idea of enjoying games, which usually require a high-end PC or laptop, on any device is alluring. Cloud gaming is expected to turn into a huge growth market with the 5G development, which has been disrupted in recent months due to the Covid-19 pandemic. However, the long-term opportunity is still there.

Recent developments

NVIDIA is already benefitting from the 5G development with the help of its application framework called NVIDIA Aerial. The framework enables telecom companies to install 5G virtual radio access networks (vRAN) supported by GPUs.

The Santa Clara, California-based chipmaker thinks that a vRAN, defined by software, can play an important role in the adoption of 5G due to its high bandwidth and low latency in real time. Contrary to conventional setups, vRAN can be smoothly transferred from one virtual machine to another, as it is not attached to any specific hardware.

Therefore, 5G networks can adapt to the users’ needs and balance the usage of resources with the help of vRAN. Moreover, vRAN can be deployed at lower costs as compared to conventional networks that ultimately help telecom operators save money. vRAN market is expected to grow at a rapid pace, given the advantages and efficiencies it brings to the 5G network.

Telecom companies such as Ericsson and SoftBank have already inked partnerships with NVIDIA for using its Aerial vRAN.

5G roll-out is still in the initial phase, so we can say that there is massive room for NVIDIA to grow in the space in the coming years.

NVIDIA financial performance

NVIDIA recently announced strong financial results for the third quarter ended October 25. The company posted a record revenue of $4.73 billion, significantly higher than $3.01 in the comparable period of 2019.

On a GAAP basis, earnings rose to $2.12 per share in the quarter, representing a surge of 46 percent from the same period last year. On a non-GAAP basis, profit came in at $2.91 per share, translating to a rise of 63 percent from the year-ago quarter.

If we look at the sale performance of different segments, revenue from the data center segment skyrocketed 162 percent on a year-over-year basis to hit $1.90 billion in the quarter, while gaming revenue climbed 37 percent to $2.27 billion.

On the other hand, revenue from the automotive segment came in at $125 million, representing a decline of 23 percent from the same period last year. Revenue from the professional visualization business also fell 27 percent to $236 million.

Q4 financial outlook

NVIDIA also issued its financial guidance for the fourth quarter along with the Q3 earnings report. The company expects to report revenue of around $4.80 billion for the fourth quarter. It projected a gross margin of around 62.8 percent on a GAAP basis, and about 65.5 percent on a non-GAAP basis.

Moreover, the company projected operating costs of around $1.64 billion on a GAAP basis, and nearly $1.18 billion on a non-GAAP basis.

Analysts coverage

Several leading research firms have been keeping an eye on NVIDIA stock. The majority of them are optimistic about the growth prospects of the company. For instance, Bank of America recently raised its price target for the company to $665 per share from $650 per share, while reaffirming a “Buy” rating.

Among other research firms, Needham analyst Rajvindra Gill retains a “Buy” rating with a price target of $700 per share on the stock. Separately, an analyst at Mizuho Securities, Vijay Rakesh reaffirmed a “Buy” rating, while increasing his price target to $605 per share.

Overall, 31 analysts have “Buy,” 6 have “Hold,” while just one has a “Sell” rating on NVIDIA stock . The mean average target for the stock is $600, well above the current price of $523.51 in the last trading session.

NVIDIA stock’s performance

The recent performance of a stock is one of the key indicators in predicting its future growth momentum. NVIDIA stock has gained significant value over the last year. If we closely analyze the recent performance of the company, NVIDIA share price has soared more than 151 percent over the past year, about +122 percent on a year-to-date basis, nearly +49 percent during the past 6 months, and around 10 percent over the last 3 months.

Considering NVIDIA’s recent growth pace, it seems that the stock will continue to do well in the coming quarters.