1. Nvidia Corporation (NASDAQ:NVDA)
No of HFs: 82
Total Value of HF Holdings: $7.6 Billion
The number one best data center stock to buy now is Nvidia Corporation. The company is an American multinational technology company that manufactures graphics processing units for the gaming and professional markets. They also produce system-on-chip units (SoCs) for the mobile computing and automotive market.
In an article, we mentioned Wedge Partners’ comments on NVDA
“We sold our position in NVIDIA Corp to fund the purchase of First Republic Bank during the quarter. NVIDIA has blown past previous peak valuation multiples as demand for its gaming and datacenter graphical processing units (GPU) have soared due to a new product cycle, as well as easy comparisons to slow 2019 sales. Earlier this year, the Company launched its new Ampere line of GPUs. Hypercloud customers such as Amazon AWS, Google Cloud, and Microsoft Azure have been quick to deploy the new “A100” chips as thousands of artificial intelligence/machine learning (AI/ML)-focused startups, enterprises, and research institutes demand more parallel processing power to run larger AI/ML models. Over the past decade, NVIDIA has developed a substantial library of software to help developers more easily utilize NVIDIA GPUs for industry-specific and domain-specific applications, ensuring limited competition from accelerated computing chip rivals. However, despite these notable achievements, NVIDIA’s datacenter end-market is quite concentrated around a handful of very large hypercloud customers that have quickly changed their buying patterns in the past – and no doubt will in the future. We estimate the market is assuming around a +25% compounded annual growth rate of NVIDIA’s revenue for the next five years, along with aggressive margin expansion. While that outcome is not impossible, we expect the path to that kind of growth will not be linear and that the market will rerate the stock lower, similar to previous cycles, if growth decelerates in its datacenter GPU franchise. NVIDIA has also enjoyed a significant boost in demand for gaming GPUs; because stay-at-home orders are conducive to increased gaming consumption. Coupled with a recent product launch, NVIDIA’s gaming unit should see robust demand for several more quarters. Unlike previous cycles, we think NVIDIA should have limited exposure to any kind of correction in bitcoin mining. NVIDIA continues to be an excellent business, with enviable market positioning and is benefitting from secular demand for compute acceleration in datacenters. However, key to our sell decision, we believe the market has discounted much of NVIDIA’s potential in the stock’s current huge valuation and would rather invest in less well-understood opportunities that have similarly dominant franchises but exhibit more attractive valuations.”
And in a separate article, we mentioned Wedgewood Partner’s 2019 Thesis,
“NVIDIA is a pioneer in the development of the graphics processing unit (GPU) – a semiconductor traditionally utilized for rendering computer graphics – and has extended the GPU beyond the graphics domain into “general purpose computing.” We attribute NVIDIA’s success in general purpose computing to their proprietary computing platform and programming model, known as CUDA.
NVIDIA’s compute acceleration platform forms the backbone of a unique value proposition for steadily emerging compute-intensive applications, such as image processing, natural language processing, assisted driving, and ray tracing (the latter relates to the video game domain). The central processing unit (CPU) has been the workhorse of general-purpose computing for decades, as reliable, almost annual efficiency gains helped drive the development of increasingly complex computing applications. As those CPU efficiency gains have slowed over the past several years, developers have begun utilizing GPUs to accelerate applications. While a CPU usually has between a couple and a few dozen cores that are very fast at computation, that contrasts with a CUDA-based NVIDIA GPU that breaks a computation down across hundreds or even thousands of cores and completes it in a fraction of the time. Yet similar to CPUs, and much like Intel’s x86 standard, virtually any industry application can utilize NVIDIA’s GPUs to accelerate performance, thanks to CUDA’s programmability and rich library of software that has been developed for more than a decade.
Please also see 10 Best Climate Change Stocks to Buy Now and Top 10 Restaurant Stocks to Buy Now
Disclosure: None.
