Nvidia has been a top investment this year, with share prices of the graphics card specialist skyrocketing nearly 133 percent in 2021 due to phenomenal growth in revenue and earnings.
However, as the chart below shows, the stock has recently shifted into a higher gear. This fantastic acceleration in Nvidia stock can be attributed to positive Wall Street commentary as well as the company’s potential to capitalize on Facebook parent company Meta Platforms’ vision of creating a metaverse that aims to bring users into a virtual world where they can do things they do in real life, such as work, play, or attend sporting events, among other things.
Nvidia is expected to benefit significantly from the metaverse, as the graphics company already has a solution — Omniverse — that can simulate reality and assist Meta Platforms in developing its platform. Let’s take a look at why this could be a big deal for Nvidia and why it could propel the stock higher in the future. Nvidia’s massive market share in graphics cards puts the company in a strong position to benefit from the metaverse. This is due to the fact that graphics cards will be the fundamental building blocks of the metaverse, as they will be critical in rendering augmented reality models in real time.
According to a third-party estimate, the growing use of graphics cards in augmented reality and virtual reality will be one of many catalysts for the GPU (graphics processing unit) market, which could reach $200 billion in revenue by 2027, up from just $20 billion in 2019. Nvidia’s Omniverse solution, which uses multiple GPUs to render resource-intensive scenes in real time, can capitalize on this enormous opportunity.
Omniverse “natively supports multiple GPUs in a single system and will soon support interactive rendering across multiple systems,” according to Nvidia. Furthermore, Omniverse allows developers to create applications and users to interact in real time using ray-tracing technology, which is currently used in Nvidia graphics cards. To put it simply, developers are expected to use Nvidia’s Omniverse to create metaverse applications.
Not surprisingly, Wells Fargo analysts predict that enterprise adoption of Nvidia’s Omniverse will increase as the platform is used to boost productivity through real-time simulation. The investment bank recently raised its price target for Nvidia stock from $245 to $320, pointing out that it could become an enabler of the metaverse and unlock a revenue opportunity worth $10 billion over the next five years.
This appears to be a significant achievement for Nvidia, given that the company has generated nearly $22 billion in revenue over the last four quarters.
As we’ve seen, the metaverse has the potential to significantly boost Nvidia’s business in the long run. When you consider the catalysts in the video gaming and data center markets, it’s easy to see why analysts expect the company to post 30 percent-plus annual earnings growth over the next five years.
Nvidia, on the other hand, could grow at a faster rate once it begins to profit from new opportunities such as automotive, cloud gaming, and, now, the metaverse. Despite its high valuation, all of this makes Nvidia a top growth stock to buy right now.
When compared to the S&P 500’s earnings multiple of 29, the stock is trading at 109 times trailing earnings and 65 times forward earnings. However, Nvidia’s rapid growth – and ability to maintain it – justifies the high valuation. In the second quarter of fiscal 2022, the chipmaker increased revenue by 68 percent year on year, while earnings increased by 89 percent due to strong growth in the data center and video gaming segments.
And now that more catalysts have entered the fray, Nvidia investors can expect the good times to continue.