Nvidia (NVDA) performed well in the fourth quarter. Its stock is currently trading near its 52-week high, but at its current pace of performance, we could see more upside to this stock. Moreover, the company has outperformed its rival Advanced Micro Devices with gains of 15%. Going forward, management expects that graphics intensive PC games will drive its revenue for its graphic cards.
Nvidia’s GPU business also strengthened as its revenue increased 8% to $947 million as compared to the previous quarter. It was mainly on account of an increase in desktops and notebook GPU sales. It also reported growth in its Tegra processor business, which increased 18% to $131 million as compared to the previous quarter. This was driven by increased sales of Tegra mobile devices. These statistics clearly indicate the strong position of the company in both mobile and gaming devices.
The company reported growth in its GeForce GTX units backed by the launch of a number of graphics intensive games such as Call of Duty: Ghosts, Assassin’s Creed IV: Black Flag, and Batman: Arkham Origins.
An important partnership
Nvidia has also entered into a strategic partnership with IBM for Tesla, as IBM plans to expand its enterprise application business. This partnership will benefit Nvidia as it will increase Tesla sales. Not only this, even supercomputers are also being accelerated by the Tesla GPU. And this demand is expected to increase further as interest from internet companies for big data analytics rises.
Nvidia has always focused on its R&D and its latest invention of virtual GPU is a big leap for the company. This is a GPU-accelerated cloud computing platform, which will drive virtualization across enterprise applications, including desktop PC applications.
Nvidia has not only developed graphics for PC but with Tegra mobile processor, it has brought the same high end PC-class graphics to mobile devices. In addition to this, Tegra is also bringing CUDA to mobile with 192 fully programmable processor cores. Thus, it can be used for image recognition or computational photography. Technocrats are seeing a future with such devices that can see our face and adapt to our moods. Such are the technologies that will provide Nvidia an edge over its peers in the future.
Entertainment is no more limited to PC’s and mobiles. In fact, with Tegra chips, Nvidia would power entertainment and navigation systems in cars as well. In this direction, the company has partnered with Audi which plans to use the upcoming Tegra K1 chip in more of its cars.
Apart from entertainment, Nvidia is also targeting driving assistance applications. The chips would be a great help to inexperienced drivers as it will provide them with high-resolution digital cockpit with 3D graphical displays. According to analysts, advanced driver assistance systems will be worth around $15 billion by 2016, growing at a CAGR of 23%. Again this will be a move that will help Nvidia to gain advantage over others in this market.
In the smartphone industry, Tegra is making a solid move. Nvidia recently bagged a phone design for its Tegra 4i processors, which integrates four A9 CPU cores. This is famous for its integrated LTE and it will be used in LG’s 4.7” G2 Mini smartphone. Although the regular LTE version will still feature the traditional Qualcomm processors, however, the Latin American versions will be embedded with Tegra 4i. In addition to this, Nvidia has partnered with Wiko, which is a fast growing company and it will embed Tegra 4i in its new phone called WAX. These strategic moves will further drive the company’s growth.
Although Nvidia is not alone in this industry, but it has outpaced its peers with its high end technology. If we compare the technical configuration of Nvidia with AMD, the former has a higher end configuration as compared to the later. Nvidia uses 7.1 billion transistors while AMD uses 6.2 billion only. Also, Nvidia employs a 7GHz memory clock compared to a 5GHz memory clock in the AMD. These were only a few to mention, which shows Nvidia’s superiority over AMD. And above all this Nvidia’s GeForce GTX 680 is cheaper and faster than AMDs HD 7970.
Thus it seems that Nvidia will benefit in the long run and management is positive about its future prospects. Moreover, the company seems quite reasonable at 25 times earnings against the industry average P/E of 36.5. Considering all these factors, Nvidia seems to be a good investment option.