Why was NVDA Stock Price up Over 220% in 2016?

We’re sitting here scratching our heads when we see that in 2016, the single best performing stock in the S&P 500 was NVIDIA Corporation (NASDAQ:NVDA) with the NVDA stock price seeing a +224% increase in 2016. Why are we so puzzled? It’s because we believe in the “efficient market hypothesis“. Allow us to explain.

There’s this notion in finance called the “efficient market hypothesis” and while that may sound terribly boring, what it actually means is this. For any given company on the stock market, all the relevant information about said company is already incorporated into the share price. This is why you see dramatic swings in share prices when earnings come out. Earnings releases bring new information which is then priced in causing share price movement. If the market was expecting the news, then you shouldn’t see much share price movement. This is why large cap stocks rarely see volatile price movements.

Prior to 2016, NVDA had actually underperformed the S&P500 over a 5-year time frame. So… why did the NVDA stock price increase so dramatically in 2016? What on God’s green earth could have made such a big company outperform the S&P500 by that much? The answer is found in the below charts:

You don’t need to have a PhD in Finance to understand that when your revenues grow by +31% and your earnings per share grow by +71%, investors are going to be very pleased. All the financial metrics above explain why Nvidia had a great year in 2016. The driver behind this growth was that Nvidia has