Though Nvidia ( NVDA 1.67% ) In 2024, this stock has been performing exceptionally well with impressive gains of 118%. However, recent fluctuations in its share price indicate that investor trust in the stock may be wavering.
In the wake of reaching a 52-week peak on June 20, Nvidia’s shares have declined by over 20%. This drop in stock value can be linked to various reasons including heightened concerns about a potential economic downturn in the United States triggered by a disappointing jobs report, uncertainties surrounding Nvidia’s capacity to maintain its impressive expansion, and worries regarding. machine intelligence It has the potential to significantly drive the tech giants who are investing substantial funds into this technology.
Yet, upon examining the monthly sales data of a significant manufacturing partner of Nvidia, it appears that the graphics card company may soon restore trust among investors and experience a significant increase in performance.
The partner of Nvidia’s manufacturing facility experienced a significant increase in revenue last month.
The manufacturing of semiconductors in Taiwan. ( TSM -1.38% ) TSMC, also known as Taiwan Semiconductor Manufacturing Company, is a company that produces semiconductor chips for chipmakers like Nvidia. Fabless chipmakers design and market semiconductors, while companies like TSMC handle the manufacturing process.
In 2023, Nvidia was a significant customer for TSMC, contributing to 11% of its total revenue. TSMC has collaborated with Nvidia to enhance the production of AI chips and address lengthy lead times. To cater to the increasing demand for high-performance chips in AI data centers, TSMC aims to boost its advanced chip packaging capacity by 60% annually until 2026.
In comparison to the previous year, TSMC experienced a 45% rise in revenue in July, reaching almost 257 billion New Taiwan dollars (equivalent to $7.9 billion in U.S. dollars). The monthly revenue growth of TSMC exceeded the anticipated consensus of a 37% increase in Q3 revenue, indicating a potential for surpassing expectations in the upcoming period.
However, TSMC’s impressive revenue growth in the last three months suggests that Nvidia may also report a strong performance in its fiscal 2025 second-quarter results, which are scheduled to be released on Aug. 28. TSMC experienced a 30% revenue growth in May, followed by a 33% increase in June, and further improvement in the last month.
Experts predict that Nvidia is expected to generate $28.5 billion in revenue during the second quarter of the fiscal year, marking a significant 111% rise compared to the corresponding period in the previous year. In the preceding quarter, fiscal Q1 ending in April, Nvidia experienced a remarkable 262% annual revenue increase, reaching $26 billion. On the other hand, TSMC saw a 13% year-over-year revenue growth in the initial quarter of the calendar year 2023, followed by a 33% increase in revenue in the second quarter.
With TSMC experiencing an increasing growth in revenue, it is likely that Nvidia has managed to secure a larger quantity of chips from the leading semiconductor manufacturer. This indicates that Nvidia might have met the demands of its customers by obtaining more supplies. This was highlighted by the company during its May report. A meeting held to discuss and review the financial results of a company. The current generation Hopper chips are experiencing a rise in demand, particularly the H200 AI chip, which is in high demand compared to its availability.
Moreover, Nvidia has indicated that there may continue to be limited availability of its upcoming Blackwell AI chips until at least 2025. Therefore, if TSMC is truly boosting chip production and can scale up manufacturing for partners like Nvidia, there is a chance that Nvidia could exceed expectations in its upcoming financial report.
It is advisable for knowledgeable investors to consider purchasing Nvidia stock before it accelerates in value.
The valuation is so appealing that it cannot be overlooked.
The recent decrease in Nvidia’s stock price has increased its appeal to investors. Currently, it is being traded at a price-to-earnings ratio of 61, which is higher than the technology sector’s average of 41. However, compared to its own five-year average of 71, Nvidia is now considered more affordable.
Moreover, Nvidia’s current price-to-earnings ratio of 40 indicates a significant boost in its profits and is consistent with the average of the U.S. technology industry. Analysts predict that Nvidia’s earnings will more than double to $2.72 per share in the ongoing fiscal year from $1.30 per share in the previous year, with a further substantial increase of nearly 40% in the subsequent fiscal year to $3.75 per share.
The semiconductor manufacturer could experience accelerated profit growth by effectively meeting increased demand through collaboration with foundry partners like TSMC. This is why astute investors seeking to diversify their portfolio may consider investing in this company. AI stock Investors looking to diversify their portfolios should think about adding Nvidia. It is always a good time to invest in a top-notch stock, and the upcoming earnings report makes now an especially opportune moment to consider Nvidia.
