NVIDIA Closes on One-Year Record Price Propelled by Wall Street Optimism

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Graphics processing unit and system-on-chip (SoC) designer and manufacturer NVIDIA Corporation (NASDAQ:NVDA) did not fare well on the stock market last year. While NVIDIA's rival in the GPU industry Advanced Micro Devices reached an all-time high share price of $48 last week, NVIDIA dropped by 35% between its second fiscal quarter of 2019 and second fiscal quarter 2020. Since then, the stock has not touched its 2Q 2019 price of $250/share. This changes today as NVIDIA Corporation is on a roll, with the company reaching a new one-year high closing price of $239.93 today, up by 1.21% over yesterday's close. The stock's current one-year high price is $241.81 that it reached on the 23rd of December, 2019.

NVIDIA Stock Rebounds to 52-week High Closing Price Today Following Disappointing Run in Twelve Months Leading to August 2019

In its fourth fiscal quarter of 2019, NVIDIA's revenue dropped by a staggering $810 million in Gaming, and $976 overall over the previous quarter, and an equally massive $785 million in gaming and $706 overall year-over-year. This revenue drop came after the company's share price dropped to $130/share in January, and it was succeeded by another drop to $132 in June 2019.

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However while the quarter marked a low for the company, NVIDIA's fiscal year 2019 saw consolidated revenues increase by $2 billion, with revenue from GPUs taking the lead in this growth. And since that fateful quarter, NVIDIA (NASDAQ:NVDA) has corrected its course and grown revenue in the fiscal year 2020's first three quarters. The company's gain on the market reflects this growth, despite NVIDIA's gaming revenue which also reflects GPU sales decreasing by 6% over-the-year in the quarter primarily due to decreased desktop-based GeForce GPU sales.

Additionally, despite the fact that NVIDIA's revenue has grown sequentially in all of its three quarters of fiscal 2020, it's yet to demonstrate a year-over-year growth. For Q1, Q2 and Q3 the company posted $2.2 billion, $2.6 billion and $3.0 billion in revenue respectively. All three mark a year-over-year drop from the $3.2 billion, $3.1 billion and $3.2 billion in revenue posted by NVIDIA in its Q1, Q2 and Q3 2019, respectively.

Nvidia's shares hit a new high of $241.77 during today's trading, four cents short of the company's 52-week high. This value is different from the 52-week high closing price the stock reached today.

NVIDIA Corporation Rallies on Wall Street Optimism Surrounding Data Center Market Growth

As we enter 2020, Wall Street too has started to express fresh optimism for NVIDIA. Analysts concluded 2019 by stating that NVIDIA will gain revenues and share price this year. The Benchmark Company and Wells Fargo upgraded NVIDIA's target share price to $275 and $270 respectively in December's final week, and Wells Fargo also chose the company as its top semiconductor stock for the year 2020.

This upgrade comes on the heels of the data center market that is expected to grow this year, and this optimism comes despite the fact that the trend for data center revenue shown in NVIDIA's quarterly report mirrors the one exhibited by the company's overall revenues that we've mentioned above. For its part, NVIDIA (NASDAQ:NVDA) expects the data center inference market to exceed $20 billion in size annually in the next five years.

One key figure that's impossible to ignore when analyzing NVIDIA's latest earnings report is operating expenses. These have grown by 15% year-over-year, despite the fact that NVIDIA's revenue has dropped over this period. The drivers behind this increase are headcount increases as the company beefs up spending for what it terms as ''growth initiatives''. Also contributing to this expense increase is stock-based compensation, higher employee compensation, investment in infrastructure and costs related to NVIDIA's acquisition of communications equipment provider Mellanox.

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NVIDIAs cash flow from operations grew by 16% for the nine months ending on October 27, 2019. This is despite a year-over-year revenue drop.

Closer Analysis Reveals NVIDIA's Cash-Flow-From-Operations Grew 237% Year-over-Year in Q3 2020

While most stock coverage focuses on a company's Net Income and Revenues to gauge its financial health, the more seasoned folks among you will know that these two ignore a third, highly valuable metric. A company's Net Income also factors non-cash expenses such as depreciation, and as a result, it often fails to provide a more 'hands-on' picture of how a firm is performing. To help us get past this barrier, we take a look at NVIDIA's cash-flow-from-operations in its latest quarter. And hidden in this area is the strongest indicator of why the company's stock has raced to a yearly high today, and why Wall Street too is optimistic for its future.

NVIDIA, it appears, is very healthy cash-wise. For the nine months ending on October 27, 2019, the company's cash flow from operations grew by 15.8% year-over-year, despite a near 50% drop in Net Income between the two time periods. Narrowing our focus only to the company's third-quarter reveals that it had $1.6 billion in cash flow from operations. This is a 75% sequential and a MASSIVE 237% YEAR-OVER-YEAR increase.

This marks a new record for NVIDIA and comes on the shoulders of improvements in credit sales collection and inventory management. Delving just a little deeper into analyzing NVIDIA's cash flow and comparing it with Intel and AMD's performance reveals that NVIDIA's overvalued when compared to Intel (NASDAQ:INTC), but undervalued when compared to AMD (NASDAQ:AMD). Of course, since this is a single metric, it is not an accurate representation of either company's final value.

Price-to-Cash-Flow: 96.36 43.33 301.56


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