Final Trade Detail
- NVDA is a dominant market leader in supplying GPUs - at 70%
- NVDA has 12-18 month market lead in AI/Big Data
- NVDA's risk-reward is too compelling NOT to dip your toes into this name
The market has given us another gift.
We’re able to buy Nvidia (NVDA) at an incredible price.
Our risk-reward ratio is just what we look for at MightyTrades. Our downside is minimal. And our upside is massive.
If we’re right, we think there’s a chance NVDA could go back to its recent highs – 100% upside from here.
But first, let’s explain what Nvidia does.
Nvidia Is A Market Dominator
NVDA is a semiconductor company that builds graphic processing units (GPUs).
Its GPUs help render incredible images and process large amounts of data.
GPUs are used pretty much across every industry: From video game consoles to automobiles to defense to pharmaceuticals.
The gaming industry alone is worth well over $100 billion. And expected to hit $180 billion by 2021 according to market research Newzoo.
NVDA is the market leader with almost 70% in supplying GPUs. Its top competitor AMD has the rest. All other companies don’t come close to Nvidia or AMD.
NVDA’s gaming revenue grew 40% year/year in the nine months ending in October – now at $5.3 billion. We think that growth will continue for at least the next couple years.
Although demand for NVDA’s GPUs are massive, that’s not what’s most exciting about buying them today.
Nvidia Is A Leader In The Data Center Market
Everyone knows big data is a massive trend that cannot be stopped.
Big data is used for artificial intelligence, autonomous driving, virtual and augmented reality, and the Internet of Things.
The market size of all of these industries will be in the hundreds of billions in the not too distant future. NVDA is there to provide the
Arthur Wood analyst Jeff Johnston says NVDA has a 12-18 month lead on its competitors in this market. It’s fueling massive growth – contributing to more than 70% growth in the nine months ending in October – now at $2.3 billion.
What’s better is NVDA’s revenues are diversified – no customer makes up more than 10% of total revenue.
NVDA is an absolute monster of a company that dominates multiple industries.
The catalysts that helped push up its share price 9x from 2016 to 2018 haven’t changed. There’s a chance NVDA finds favor again in the eyes of investors.
So let’s back up and give a recap of what’s happened to Nvidia over the past couple months.
Nvidia’s Goes From Darling To Doghouse.
Nvidia has been one of the market darlings over the past couple years.
Its stock rose over 900% from 2016 to its 2018 peak. It was so popular amongst the investing masses, it was starting to get included in the FAANG abbreviations.
But then came the market volatility in October of 2018.
Nvidia’s share price dropped over 55% through December – shaving off over $95 billion in market cap.
Investors dumped momentum stocks and “fled to safety.” Nvidia’s valuation was insanely high. So it was ripe for a pullback. But 55% seemed a bit excessive to us.
The U.S. markets have since stabilized. And the bottom looks to have been set. Which is where our opportunity presents itself.
That’s why we’re going to dip our toes into Nvidia today.
Look, this “V-up” recovery over the past couple weeks could be a dead cat bounce. We’ve seen this script play out before in bear markets.
The market drops 10-20%. Investors buy the dip thinking the selloff is over. And then the market drops to new lows.
We’re not going to predict where the market is headed. But the risk reward ratio right now is too compelling NOT to buy.
You see, NVDA hit a December low of $127 – 14% below our entry price of $148. That’s our downside.
Our upside is NVDA headed back to new highs – a near double from today’s prices. (But we’re setting our target price at the price base around $215).
This is an incredible risk-reward ratio.
Buy NVDA up to $155. Set your stop loss at its December low of $127.
Important Note: NVDA reports earnings early February. NVDA is a very volatile name. And this earnings season has been a huge disappointment pretty much across every industry. We could easily stop out if NVDA disappoints. That’s okay. We’re risking a small amount of money to gain massive upside. If NVDA drops below $127, there’s much bigger problems with the company and the market as a whole.
As always, don’t put more than 1-2% of our portfolio into this name. Especially before earnings. (More conservative investors might look to buy a ½ position now. If NVDA beats earnings and its share price rises, they can invest the 2nd half.)