Luminar Technologies (NASDAQ: LAZR) recently announced a deal with tech giant NVIDIA Corporation (NASDAQ: NVDA). It's been agreed that Luminar will supply laser sensors for Nvidia's self-driving car platform. It's good news for the smaller company, and the LAZR share price shot up 32%, settling at a 15% rise by the end of the day.
Is Luminar Technologies stock a buy?
Luminar is a manufacturer of Lidar sensors, with its laser-focused sights set on autonomous driving.
The deal marks an inspiring achievement for Luminar, which went public via a special purpose acquisition company (SPAC) a year ago. At the time, SPAC listings were all the rage and, coupled with Luminar's ambitious plans, made it an attractive proposition.
This led Luminar's share price to soar over 300% within a month of going public.
However, the excitement was soon replaced with extreme volatility, and the stock price was brought back to earth with a bump. In recent months it's been consolidating around the mid-teens. But the Nvidia news has brought it back above $20 a share.
Whether LAZR is a good stock to buy remains highly speculative. The Nvidia news undoubtedly gives it clout but its profitability that matters long term. And the reality is self-driving cars are still many years away.
How is Nvidia involved in self-driving cars?
The Luminar deal is one of several exciting announcements made at Nvidia's virtual GPU Technology Conference (GTC).
Nvidia has been championing autonomous driving for some time now and is rolling out three technologies to support its ambitions. These are Nvidia Drive Hyperion 8, Drive Chauffeur, and Drive Concierge.
Luminar's lidar vehicle navigation solution has been selected for the NVIDIA DRIVE Hyperion Autonomous Vehicle Reference Platform.
In addition to these consumer offerings, Nvidia has announced its new Omniverse Replicator for Drive Sim. This is a type of simulator where AI models of cars can practice driving in various weather conditions, parking, crashing etc. This all takes place in a virtual world, which is essentially a digital twin of the real world. It all sounds very futuristic, but it should help fast-track the process to ensure autonomous vehicles become a safer alternative to manual driving.
This virtual Omniverse platform is already being tested by Lockheed Martin (NYSE: LMT). The American aerospace and defense corporation is using Nvidia's Omniverseto simulate and manage wildfires. And other companies are using it to create "digital twins" of buildings and factories.
Nvidia's ambitions are even grander, as its CEO Jensen Huang outlined at GTC:
“We will build a digital twin to simulate and predict climate change. This new supercomputer will be E2, Earth 2, the digital twin of Earth, running Modulus-created AI physics at a million times speeds in the Omniverse. All the technologies we’ve invented up to this moment are needed to make E2 possible. I can’t imagine greater and more important news.”
Will Nvidia stock continue to rise?
The Nvidia share price has soared nearly 500% over the past two years, and the company now has a $766 billion market cap. This was in part driven by an increase in demand for semiconductors, while supply simultaneously fell.
Semiconductors are the beating heart of so many current and future technologies. They are found in so many electronic components such as diodes, transistors, and integrated circuits. And have become a crucial part of the operating system of tech, from smartphones to TVs, bank ATMs, military systems, transportation and now EVs.
Their prominence in keeping the world moving has been highlighted since the pandemic hit supply chains. Thus maintaining control of semiconductor supplies has become a matter for national security. That's why interest in Nvidia stock soared as investors speculate US-based manufacture in chips will ramp up in the coming years.
But the big question is, will Nvidia stock continue to rise? It's hard to give a definitive answer because there are several reasons to be equally bullish and bearish.
Bullish reasons to invest in Nvidia stock
Nvidia showcased a myriad of pipeline projects at the GTC, including metaverse-like plans to drastically expand its virtual offerings.
The metaverse is where virtual and physical worlds collide to become one. Revenue from the global metaverse market is projected to reach $828 billion in 2028, registering a compound annual growth rate (CAGR) of 43.3% between now and then.
With Nvidia taking its part in this very seriously, it gives metaverse believers firm conviction in the likelihood of Nvidia's star continuing to rise.
Along with rising demand for semiconductors, a solid reputation for top-quality graphics cards and high-end tech, the company remains a favorite of many investors.
It also doesn't have much institutional weight going against it as short interest is only around 1%.
Bearish reasons to avoid Nvidia stock
Nevertheless, the metaverse is a highly speculative arena, and Nvidia is already sporting an extremely high share price with a price-to-earnings ratio (P/E) of 109. Its price-to-book value is 36x, and its dividend yield is a tiny 0.05%.
Competition is fierce. AMD (Advanced Micro Devices (NASDAQ: AMD)) is a strong competitor of Nvidia but has a more attractive share price. Meanwhile, Taiwan Semiconductor Manufacturing Company (NYSE: TSM) has plans to expand into America.
Then there’s the COVID-19 pandemic which continues to impact the semiconductor business posing a threat to Nvidia’s profitability.
Nvidia addresses four large markets: Gaming, Professional Visualization, Data Center, and Automotive. These markets often experience rapid technological change, changes in customer requirements, new product introductions and enhancements, and evolving industry standards.
The bulls believe Nvidia could easily become the next trillion-dollar company. Whether that's achievable in the short term remains to be seen.