News of technology company mergers and partnerships have continued to light up the market this week, and for good reason.
The tech sector has been a top performer in 2020, with biotechnology accounting for over a third of the 60 stocks that jumped at least 400% at some time during 2020’s first three quarters.
Investors have focused on biotech plays as the pandemic unfolds, while technology companies that can provide faster wireless service through 5G, video conferencing, gaming and home computing have benefited tremendously.
I’m anticipating tech stocks — particularly the ones I select that have superior fundamentals — will continue to outperform as the third quarter earnings season arrives and companies begin reporting their latest numbers starting in about a week.
A weak dollar like we’ve seen is a windfall for multinational companies like the big tech firms, while companies are also able to refinance their debt at ultralow rates, which improves cash flow. Some companies take that cheap money and use it to buy their competitors. If a company, for example, traded at 50 times earnings and its competitor traded at 30 times earnings, the company can buy its competitor and instantly add to its earnings per share.
Case in point: NVIDIA Corp. (NVDA), a stock I’ve had in my Growth Investor portfolio since May 10, 2019.
The company is the market leader of the graphics processing unit or GPU, the electronic circuit used in creating and manipulating images for video games and much more.
But that’s just the beginning for this chip maker whose designs are also used in cutting edge fields like cloud computing and artificial intelligence (AI).
It’s currently trying to finalize its purchase of the U.K.-based chipmaker ARM Holdings from the massive tech investor Softbank Group (SFTBY) for $40 billion. If it goes through, the acquisition would represent the largest semiconductor deal in history and provide a huge boost to NVIDIA’s dominance in the sector, as well as investors’ portfolios.
Just two days ago, when NVIDIA kicked off its main event of the year, the NVIDIA GPU Technology Conference, CEO Jensen Huang set forth his vision for an upcoming “Age of AI.” This fundamental shift in computing will require new chips, systems, algorithms, tools and more, and Nvidia will be at the forefront.
As an example of what’s to come, the company announced it is partnering with GlaxoSmithKline (GSK) to aid in drug discovery with data-driven analytics that uses genetic and clinical data to bring more precision to pharmaceutical research. Shares of both companies soared on the news.
NVIDIA also said it’s working to help build the U.K.’s most powerful supercomputer, dubbed “Cambridge-1.” The 52 million dollar computer will use AI to help it achieve 400 petaflops or 400 quadrillion operations per second to innovate in healthcare and drug discovery.
The company also said it is working on a Data Centre infrastructure-on-a-chip for developers, a new data processing unit or DPU to enhance cloud computing networking, storage and security performance, and new artificial intelligence toolkits to make it easier to build and deploy AI applications on NVIDIA-certified systems.
It’s even released new AI-enhanced video conferencing software called Maxine to boost the performance of those video chats we’ve become accustomed to in the pandemic.
In its latest report back in mid-August, the company reported a 50% year-over-year gain in revenue to $3.87 billion, with record data center revenue that surged 167% to $1.75 billion. Earnings climbed 76% from the prior year to $2.18 per share and beat analysts’ expectations by 10.7%.
In other words, this tech juggernaut has been firing on all cylinders.
Since I recommended the stock to Growth Investor subscribers, it’s up an outstanding 229%. Contrast that with the 19% gain with the SPDR S&P 500 ETF Trust (SPY) over the same timeframe.
It’s a fitting illustration of why an index fund like SPY may be OK for your portfolio, but it’s nowhere near what you’d get in individual stocks if you do a little extra work and a little extra thinking each year to choose better (or let me do it for you.)
Take another technology leader I recently recommended to Growth Investor subscribers.
This company is also at the forefront of the online gaming sector that’s taken off during the pandemic as folks spend more time at home and in front of their screens. But its products extend well beyond the gaming sector to include keyboards, tablet and smartphone accessories, headsets, webcams, home security cameras, smart home devices and more.
We added to the Growth Investor portfolio on August 28, and already, it’s up 5.7%, while SPY is down 2.4%. In fact, on Monday the stock hit a new 52-week high. Over the past 90 days, analysts upped their earnings forecast for the company four times.
More importantly, it’s sitting pretty right now as a “Strong Buy” in my Portfolio Grader with an overall grade of “A,” an “A” in Earnings Growth and an “A” for its Quantitative Grade.
The company is set to announce third quarter earnings on October 20, so the time to act on this stock is fast approaching.
In Growth Investor, we’re well-positioned to benefit from technology trends like AI. And if you sign up for Growth Investor now, I’ll tell you everything you need to know about the AI industry in my special report The A.I. Master Key. This report is yours – absolutely free.
Plus, my Growth Investor Buy List is locked and loaded with more hi-tech plays that I expect will benefit from the stunning earning season just ahead.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
NVIDIA Corp. (NVDA)