Nvidia (NASDAQ:NVDA) continues to pull all the right levers. That’s as true now as it was five or six years ago. As a result, patient investors have been rewarded with NVDA stock. Shares are up more than 2,000% in the past five years and almost 200% over the past three years.

We are giving credit where credit is due. Nvidia doesn’t boast such superior performance because of luck.

It’s also not due to irrational exuberance among investors, either.

Instead, Nvidia CEO Jensen Huang has successfully positioned the company in multiple secular growth industries.

After such a successful run, it’s now leveraging M&A to help boost its results.

When management is able to generate even more value for investors beyond its organic growth, investors should cheer — and with NVDA stock, they have. These are the exact kind of groundbreaking narratives I like to track on a daily basis.

Nvidia Continues to Lead

Nvidia should be attractive to long-term investors for three main reasons:

  1. It’s not benefiting from just one or two growth themes, it has many
  2. The company isn’t growing only because of the novel coronavirus
  3. Nvidia’s growth is long-term and should continue for many years to come

At-home and remote work, the datacenter, gaming, artificial intelligence and machine learning, autonomous cars — just look at how deep Nvidia’s portfolio is.

Admittedly, there are some segments that are struggling in our new coronavirus-altered world. For instance, automotive revenue has been sluggish as the industry has been hit hard by the coronavirus.

That said, other areas are thriving. For instance, datacenter revenue and gaming have been on fire. Analysts expect 44.5% revenue growth this year to $15.77 billion. At the start of 2020, those estimates stood at about $10.8 billion, which shows you just how strong Nvidia’s growth ramp has been throughout this year.

Earnings are forecast to grow an even more impressive 57% to $9.09 per share this year. Next year, estimates cool to “just” 21% earnings growth (to $11.01 per share). However, I think these estimates may be conservative.

I wouldn’t be completely floored by $12.50 to $13 per share in earnings and $20 billion in revenue. Nvidia continues to show just how big its growth potential is and how much runway is left.

Value Creation

Nvidia doesn’t just do a good job growing its business organically, it does a good job with M&A as well. Earlier this year, Nvidia closed on its acquisition of Mellanox.

The deal rang in at about $7 billion, but it was a fantastic acquisition. Nvidia does a lot of business in the datacenter, as does Mellanox (but in a different realm). In fact, the two companies often worked together, which creates an excellent combination of synergies.

Now that the deal is complete, investors and management alike expect it to be immediately accretive to earnings, margins and cash flow. Nvidia already has strong margins and impressive growth. There’s only so much it can do with its cash when it comes to investing in itself.

After fully investing in itself, the options become: building a cash hoard, return cash to shareholders or use the funds to make accretive acquisitions. Thus far, I trust management to continue making the wise moves.

The latest? Acquiring Arm in what could be a $40 billion deal if it receives regulatory approval.

I love that Nvidia doesn’t overpay for flashy and richly valued companies. Like Mellanox, the Arm deal is at a reasonable price, although it’s a much larger deal. On the plus side, the two are not competitors, so that should help it gain approval.

Both the problem and the attraction with the tie-up is that it will create a semiconductor juggernaut. While the two companies aren’t competitors, regulators may be weary of letting the companies form such a dominant position. That’s particularly true for outside regulators in different countries (like the E.U. or China). But if they do, look out, because Nvidia will be unstoppable.

The Bottom Line on NVDA Stock

Source: Chart courtesy of StockCharts.com

When looking at Nvidia, I just see strength. There’s strong secular growth in several of its businesses. Its financials and cash flow are strong, as are its acquisitions. Lastly, its technicals are strong.

NVDA stock has been hot since it came roaring off the March lows. After temporarily topping in September (along with the Nasdaq), shares dipped, but didn’t even test the 50-day moving average. That’s a true display of strength.

— Matt McCall

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