Buy, Hold or Sell: A Deep Dive Into NVIDIA Corp. (NVDA)

California-based chip designer NVIDIA Corporation (NVDA) has had an outstanding 2023. The stock has continuously outperformed the S&P 500 and more than doubled year-to-date.

The company went public on January 22, 1999. However, it was not until the pandemic that the tailwind of crypto mining resulted in a surge in demand for its chips and the stock price. This time around, NVDA is riding the waves of Generative AI and Large Language Models (LLMs) that began with the release of ChatGPT to the general public towards the end of the last year.

NVDA is set to release its financial results for the first quarter of the fiscal year 2024 after the bell on May 24. To understand how the business would fare and how its stock price could be impacted after and beyond the upcoming earnings, let’s understand how the global provider of graphics, computation, and networking solutions has grown from being a major player in the gaming industry to an AI giant.

During the dawn of the PC revolution, NVDA’s founder and CEO, Jensen Huang, realized the emergent applications and demand for accelerated computation on the horizon and designed its first high-performance graphics chip in 1997. However, given the relative scarcity of use cases, the fledgling chip designer chose to bet on visual effects and gaming and struck the jackpot.

In 1999, the company launched what it claims to be the first programmable graphics card, the GeForce 256, and popularized the term, Graphics Processing Unit (GPU). In 2000, the company was the first exclusive graphics provider for Microsoft and Xbox.

Since then, these GPUs have become the mainstay of high-resolution gaming and animation to form the primary business of NVDA and contribute around 80% of its revenue.

Moreover, crypto miners hoarded and bid up these gaming GPUs at the peak of crypto-mania. However, with the onset of crypto winter due to rising interest rates and increased regulation risk, those GPUs flooded back into the market. The resulting oversupply led to a 46% year-over-year decline in gaming revenue.
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