Nvidia (NVDA -4.50% ) did a great job in return of capital to shareholders in the form of dividends and share buybacks. But, will this beloved company see an appreciation in its stock? In this clip from “3 Minute Stocks Updates” on Motley Fool live, recorded on March 30Motley Fool contributors Toby Bordelon and Rachel Warren explain where there is still growth and opportunities ahead for Nvidia.
Toby Bordelon: One thing they are looking at is artificial intelligence. If you follow Nvidia, I’m sure you’re very aware of this. They see a big opportunity here, and just in the lower right corner you can see the size of the industries they are looking for big opportunities in AI. They really see a lot of potential here. One of the ones they’re really focusing on is the automotive industry, self-driving vehicles, self-driving cars, that sort of thing. I want to focus on that just because it’s cool. You can see some numbers here on what they’re watching. One billion passenger and utility vehicles, 8% electric vehicle penetration right now. They think it will reach 50% by 2035. They see more opportunities there. You can see they are already a leader in this space. Their technologies are now in 20 out of 30 electric vehicles, seven out of 10 trucks, and eight out of 10 robo-taxi companies. In terms of the data centers there, they’re in all of them. All active autonomous vehicle data centers, they are there. They are already a leader, and they expect to see that leadership continue even further. They just announced an $11 billion pipeline with some partners. Here you see a group of car manufacturers and other companies working in the automotive industry. They are a huge presence. It’s just one part of what they do. What did they do? It’s not just a company with potential. They deliver results. You can see here from fiscal year 2022, a record year, look at this increase in revenue. But what I like most about this graph here, as you see, operating profit and earnings per share have increased more than revenue. So they increase revenue while controlling costs, increasing gross margins, and achieving results like this through investment commitment. You can see a compound annual growth rate of 24% in R&D and CapEx since 2010. They’re just investing. They continue to invest in this company, to make smart acquisitions and what does that bring them? Gives us excellent cash flow. All of this leads to significant free cash flow for investors, $8 billion in the last fiscal year. Fantastic. In addition to stock purchases and dividends, it’s a great company that’s well managed and I think there’s more to come.
Rachel Warren: I love this business. I mean, I think there’s no doubt. It is a real powerhouse. One question I have, and I think it gets talked about quite frequently, is there a lot of lead left for this company? We know stocks are up about 120% in the last year, which blew my mind when I saw this given the volatility we’ve seen in the market. Do you think investors have seen as much lead as this company is going to offer in the next few years? Or do you think there is still a lot of growth?
Bordeaux: I think there is potential for growth, especially if the areas and things that we see in artificial intelligence work. Valuation is certainly a concern. But one thing you need to remember is that they have done a great job of returning capital to shareholders in terms of dividends and share buybacks. I think you’re going to see some stock appreciation even without considering the growth of the company, because they have this huge cash flow, $8 billion last year and growing. They can continue to redeem shares. You’re going to get some growth from that. You can think of it as the company reinvesting in the business for you, if you want to think of it that way. But the growth will continue. I think there are a lot of opportunities. I wouldn’t be scared off by this one, but be aware that you’re likely to see some short term dips in the average shifts as this is a pretty rich valuation.
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