Robinhood upended the finance world with commission-free trades and fractional shares, inspiring young investors to participate in the stock market. But the platform has also received a fair amount of criticism, as it's become somewhat synonymous with meme stocks and gamified investing. Regardless of which view you take, there are good companies to be found on Robinhood's Top 100 list.
For instance, NVIDIA (NVDA -1.91%) is a semiconductor company that plays an important role in emerging technologies like artificial intelligence (AI). Here's why investors should consider buying this Robinhood stock.
Image source: Getty Images.
Market opportunity
NVIDIA specializes in high performance computing (HPC). At the core of its platform is the graphics processing unit (GPU), a chip invented by the company in 1999. GPUs parallelize compute intensive code, meaning they can process lots of data very quickly. Originally, these chips were designed to render ultra-realistic gaming graphics, but they now play a critical role in accelerating data center workloads like artificial intelligence and analytics.
Beyond hardware, NVIDIA's compute platform also includes an array of GPU-optimized software for AI, HPC, and data science. For instance, the Merlin framework helps developers create intelligent recommender systems, enabling clients like Snap and Postmates to engage consumers with relevant content. And the Isaac framework helps engineers build and deploy autonomous machines, like the smart robots in manufacturing and logistics facilities.
In short, NVIDIA's compute platform is an end-to-end solution for accelerated computing, inclusive of the hardware, software, and systems needed for cutting-edge graphics, complex scientific research, and all forms of artificial intelligence. Collectively, NVIDIA puts its market opportunity at over $125 billion by 2025.
Competitive advantage
Before buying a stock, you should always consider its competitive advantage. In other words, what separates this company from its rivals? And is that edge sustainable? In this case, NVIDIA's advantage stems from its intellectual property and first-mover status.
Specifically, NVIDIA literally invented the GPU, bringing revolutionary graphics to video games and unmatched computing power to data centers. Today, the company commands 81% market share in discrete GPUs for personal computers, evidencing its rapport in the gaming community. And NVIDIA leads the supercomputer accelerator industry by an even wider margin, holding over 90% market share.
Not surprisingly, that dominance has translated into an impressive financial performance.
|
Metric |
Q2 2018 (TTM) |
Q2 2022 (TTM) |
CAGR |
|---|---|---|---|
|
Revenue |
$8.3 billion |
$21.9 billion |
27% |
|
Free cash flow |
$1.9 billion |
$6.7 billion |
37% |
Source: Ycharts. TTM = trailing-12-months. CAGR = compound annual growth rate. Note: Q2 2022 ended Aug. 1, 2021.
Growth strategy
So far, we've checked several important boxes. NVIDIA has a big market opportunity, a strong competitive position, and an impressive financial history. But we still need to consider the future. What is the company doing to grow its business?
Last year, NVIDIA acquired high performance networking specialist Mellanox, expanding its hardware portfolio with a second chip, the data center processing unit (DPU). These chips offload networking tasks to accelerate and secure workloads like artificial intelligence and supercomputing. And in 2023, NVIDIA plans to release a third chip, the Grace central processing unit (CPU). These semiconductors will feature energy-efficient ARM cores, outperforming today's fastest servers by a factor of 10.
Collectively, these moves pave the way for NVIDIA to play a bigger role in the data center. The company already pairs its GPUs and DPUs in the DGX SuperPOD, a turnkey solution for enterprise AI. And the addition of a CPU next year should supercharge that dynamic.
Perhaps more noteworthy, NVIDIA is also expanding into the software-as-a-service (SaaS) market. The company recently introduced Omniverse, a platform that allows 3D creators to collaborate in a virtual environment. Omniverse also acts as a simulation engine, allowing engineers to train AI models for self-driving cars and autonomous robots. In short, NVIDIA sees this product as a stepping stone to the metaverse.
Likewise, NVIDIA recently launched Base Command, a cloud-hosted solution that provides on-demand access to AI development tools. And to complement this product, NVIDIA debuted Fleet Command, allowing clients to deploy and manage all of their AI applications from a single platform.
Collectively, NVIDIA's move into SaaS products should reduce the company's dependence on cyclical hardware sales, and help it capture more recurring revenue in the form of subscription fees. In short, NVIDIA appears to have a bright, profitable future. That's why I think this Robinhood stock is a smart long-term investment.
