Moving into the fast lane sometimes requires a toll. Nvidia’s investors should keep that in mind.
That tab for Nvidia [stckqut]NVDA[/stckqut] is currently about 40 times forward earnings—expensive for a chip stock, given the PHLX Semiconductor Index averages about 15.6 times. It is also about 35% cheaper than what Intel just paid for Mobileye, a chief competitor of Nvidia’s in the self-driving-car space.
A buyout is unlikely for Nvidia. With a market cap north of $60 billion and a stock price that has more than doubled in the past year, Nvidia is likely out of reach for even those with the deepest pockets. That puts the onus on the company to justify that premium on its own.
It isn’t a bad bet, particularly given Nvidia’s early success in growing its business outside of the PC graphics processor segment.
That especially holds in the auto industry where the push for self-driving cars makes manufacturers hungry for the type of computing horsepower Nvidia’s chips can deliver. Autos are a small business for Nvidia now, totaling about 7% of revenue for the fiscal year ended Jan. 29. But the revenues there surged by 52% from the previous year.
Growth here will likely come from the many key partnerships the company has lined up. The past week alone saw new deals with auto-parts giant Bosch and commercial-truck manufacturer Paccar on autonomous vehicles.