Mad Money with Jim Cramer
After Nvidia’s stock popped over 17 percent on Wednesday following Tuesday’s strong earnings report, Jim Cramer had to piece together what drives the gains for the outperforming chipmaker.
The company, led by CEO Jensen Huang, delivered $1.94 billion of revenue in the first quarter and 48 percent year-over-year growth. It also gave bullish second-quarter guidance.
The “Mad Money” host said the first driver for Nvidia’s blowout success was the fast-growing area of virtual gaming.
“Nvidia makes the best graphics processors around. Gaming was up 49 percent as this company makes graphics chips that can run gorgeous games on your PC or power the new Nintendo Switch, which is the hottest console in the universe,” Cramer said.
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E-sports are gaining popularity rapidly, a boon to Nvidia’s bottom line. On the post-earnings conference call, its CEO nodded to the gaming sector’s positive impact on business.
“With apologies to the start of the baseball season, E-sports is now as popular among the U.S. male millennials as American’s favorite pastime,” Huang said. “More people will be gaming than HBO, Netflix, ESPN and Hulu combined.”
And with Nvidia client Electronic Arts beefing up its new Star Wars Battlefront II game for a November release, Cramer has no doubt that this trend will accelerate.
The next group of drivers are Nvidia’s clients in the professional visualization space, more commonly known as the virtual images companies use to let customers preview their products.
“Nvidia’s chips are being used by everybody, from Lockheed Martin for reliable virtual reality for the U.S. Navy to Ikea,” Cramer said.
With the new administration promising to bolster the U.S. military and e-commerce sales on the rise, the forecast for that area of Nvidia’s business looks sunny as well.
Nvidia’s third booster comes from the data center space, where its business is now three times larger than it was one year ago, Cramer said.
“Amazon Web Services, Facebook, [Alphabet’s] Google, IBM and Microsoft all rely on their chips — who else is there — to power their cloud platforms because of Nvidia’s artificial intelligence prowess,” he added.
Fourth but not least is Nvidia’s burgeoning auto business, which grew at 24 percent last quarter. The company’s products are now in 225 car and truck models, and Nvidia’s recent partnerships with Bosch, the world’s biggest auto supplier, and Paccar, a leading truck manufacturer, show the company making definitive forays into the autonomous vehicle space.
“Huang made it clear that because of the Amazon effect, there is a shortage of professional drivers coming. You’ll need autonomous cars and trucks to power everything from shuttles and vans to pizza delivery in the not too distant future,” Cramer explained. “You could understand from this call why Intel had to buy Mobileye. More chips for autonomous cars. Without it, Nvidia could leave the world’s largest chipmaker behind.”
Cramer walked away from the conference call with confidence that Nvidia is a leader in these monumental areas that position it to seriously benefit from growth in products like Amazon’s Echo and Alexa and industries like gaming, which now serves 30 million people.
But being present in some of the market’s hottest areas is not enough, Cramer said. Nvidia’s intellectual property and skills in artificial intelligence are really what make the company’s products indispensable to any technological players that want to compete.
“You don’t use Nvidia, you won’t be able to win the enterprise or the customer,” Cramer said. “No wonder the stock was the best performer in the SP 500 last year and rallied $18 today. Artificial intelligence is here and you could argue it’s here because Nvidia’s processing power allows it. I doubt that any of its customers would disagree.”
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