The Tech Company That's Beating Google, Facebook and Amazon
Business + Economy

The Tech Company That's Beating Google, Facebook and Amazon

Mike Blake

Technology in the U.S. is increasingly about the battle between Apple, Google, Facebook and Amazon.com to capture consumer spending and ad dollars.

But for investors, the best tech bet of late has been a more obscure name: Nvidia.

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The maker of computer processors for video games, connected cars and data centers has seen its stock surge 146 percent in the past year, second only to Newmont Mining among companies in the S&P 500. No other tech stock has gained more than 50 percent in that stretch.

The story is pretty simple. Nvidia's semiconductors are powering innovation in some of the world's fastest growing industries. Its core graphics processing units (GPUs) enable popular video games like "Battlefield 4" and "Call of Duty: Black Ops III." And as computing rapidly evolves in the cloud and Internet of Things, Nvidia's technology is being adopted by companies focused on big data, artificial intelligence and autonomous driving.

Investors who have piled into the stock ahead of Nvidia's quarterly earnings report on Thursday will be closely following the numbers after the bell. The company has little room for disappointment.

"If it were to hit a roadblock or stumble, there will be a lot of momentum players coming out of the stock," said Brian Alger, an analyst at Roth Capital Partners.

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Not that Roth, who has a "buy" rating on the shares, is betting on a misfire. He said the stock has become a core holding for tech investors, and this week he raised his price target by 70 percent to $68. The shares fell 0.7 percent on Wednesday to $58.51.

Among the five most valuable tech companies — Apple, Alphabet, Microsoft, Amazon and Facebook — the best performer over the past year has been Amazon, up 47 percent, less than one-third Nvidia's advance.

Analysts expect Nvidia to report second-quarter revenue growth of 17 percent to $1.35 billion, according to a Thomson Reuters survey. Earnings per share likely rose to 37 cents from 5 cents.

Should Nvidia meet projections, it would mark the company's fastest quarterly sales growth since 2011.

"They're in several massive growth markets where they have differentiated solutions, very few competitors and are executing extremely well," Alger said.

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Nvidia has gotten a boost of late from a rival's disappointment. Advanced Micro Devices, which as recently as last year faced risks of possible bankruptcy, released its new graphics card for virtual reality in June. The product was quickly criticized for drawing too much power, potentially damaging motherboards.

Alger said AMD no longer poses much of a threat. That company has lost money each of the past four years and, when it comes to Nvidia's newer businesses, there aren't many rivals.

For example, Nvidia is selling its technology into data centers, which are rapidly moving towards machine learning and artificial intelligence. Within data centers, Nvidia has gained traction in recent years helping businesses process mounds of data coming from all the devices connected to the Internet. The next step is training those machines through algorithms to learn like humans.

Nvidia's Chief Financial Officer Colette Kress said at a conference in June that artificial intelligence is a big part of what's "driving overall growth in data center."

Nvidia "anticipated the emergence of these applications and invested in these applications and helped develop them, whereas their main competitor AMD was more constrained and resource challenged," said Ian Ing, an analyst at MKM Partners. He has a buy rating on the stock and a $64 price target.

Venture capitalist Marc Andreessen said in a podcast last month that Nvidia has "seemingly overnight" become the market leader in chips used for artificial intelligence.

"Every sharp AI software entrepreneur that comes in here is now building on top of Nvidia's chips," Andreessen said.

Additionally, Nvidia's GPUs are currently being used by automakers in their infotainment systems. But the real opportunity in cars is tied to the future of autonomous driving and the computing that will be required for cars to learn how to drive themselves.

Alger estimates the market will eventually be 10 times as big as it is today.

All of that bullishness has fueled a rally in Nvidia that pushed the shares to a record in May, surpassing the previous high from 2007. The stock just kept going up after that, surging 63 percent in the past three months.

The pressure is now on Nvidia CEO Jen-Hsun Huang to satisfy investors' lofty expectations. Nvidia is priced at 50 times earnings, more than double its five-year average of 22, according to FactSet.

As Ing said, "the bar is probably higher this time around."

This article originally appeared on CNBC. Read more from CNBC:

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