With the world turning towards a digitalised future and tech companies advancing at a rate never before seen, the question I ask myself is, how can I secure passive income in this era of rapid technological advancement?
The NVIDIA (NASDAQ: NVDA) share price has risen 95% in the last 12 months and has a long-standing healthy balance sheet. This is the one tech share I’ve bought that I believe will return sustainable passive income for me over the next decade, here’s why.
NVIDIA as a long-term investment
NVIDIA designs graphic processing units (GPUs) for gaming as well as mobile computing and automotive market system on chip units (SoCs). The GeForce RTX 30 series graphic card by NVIDIA is one of the most cutting-edge products on the market.
Further, NVIDIA also attracts many crypto miners. NVIDIA has created a specific card just for crypto miners to ensure that the market won’t be flooded with cheap RTX 30 cards if cryptocurrencies were to suddenly crash.
I think NVIDIA’s strong position as a market leader in GPU design shows that it will perform well for many years to come. This is why I have great confidence that my investment will continue to grow.
NVIDIA’s first quarterly report also shows great signs for my investment. Revenue increased 84% year over year to US$5.66 billion and earnings per share increased 106% year over year to US$3.03.
Of course, this report isn’t the only financial reason for my bullish approach to NVIDIA. I point to the fact that the company has been consecutively profitable over the last 10 years. Investing in a highly profitable company is a deciding factor for me when I’m looking for long-term passive income.
In recent news, NVIDIA is planning to acquire ARM Holdings from Softbank Group in a US$40 billion deal. ARM designs mobile chips for nearly every mobile device in the world, including the iPhone and the majority of Android devices.
This momentous takeover would make NVIDIA a tech giant in the industry, and we could witness a surge in share price if the deal is completed by the end of this year as NVIDIA expects.
Whilst NVIDIA has been one of the fastest growing stocks on the market, there is a risk that the share price is now overvalued. With a high price-to-earnings (P/E) ratio at 95.74, we could witness a price pullback for NVIDIA in the near future.
There is also the possibility of new players entering the GPU market, which could lead to a drop in selling prices and damage NVIDIA’s market share. In fact, NVIDIA has become expensive compared to its competitors such as AMD, Intel, and Qualcomm.
Is it a good investment for passive income?
NVIDIA shares could well see a price pullback because of the current 95 times P/E ratio, which is a huge rise in P/E ratio since the start of 2021. That’s why I’m not looking for big short-term gains on NVIDIA.
I think NVIDIA will provide me with long-term passive income, especially if the deal with ARM is completed, which would make it one of the biggest tech companies of the next decade.