The chip maker NVIDIA (NASDAQ:NVDA) posted its first quarter results recently which showed great growth. This was pretty surprising to investors since it came in after a struggling 2013 where the company was in a difficult situation and was unable to perform. The strength of its GPU business has been one of the key drivers of growth. Let us get into the details.
Analyzing the quarter
Revenue for the quarter grew 16% over last year, clocking in at $1.1 billion. However, it was down 4% over the previous quarter. The company has been witnessing surge in the top line, over last year, mainly because of growth in PC gaming as well as its efforts into cloud and data centers. Further, it has introduced GRID, Nvidia’s virtual GPU platform, and 600 enterprises are evaluating it. Also, GRID is already available in 50 server platforms, which is a great success for the chip maker.
Even the bottom line jumped during the quarter with a 61% increase in adjusted earnings per share over the prior year’s quarter. It stood at $0.29 per share, compared to $0.18 per share last year. However, earnings were down over the previous quarter ($0.32 per share).
- Warning! GuruFocus has detected 4 Warning Signs with NVDA. Click here to check it out.
- NVDA 15-Year Financial Data
- The intrinsic value of NVDA
- Peter Lynch Chart of NVDA
One of the primary drivers of Nvidia’s growth during the quarter was higher demand for Tesla. Both Tesla and GRID have been driving sales in the data center segment. In fact, Nvidia Enterprise GPUs are now accompanied with new products by some of the prominent players, IBM, Cisco and Dell. This should again help Nvidia in driving sales higher.
Nonetheless, the company faces stiff competition from players such as Intel (NASDAQ:INTC) since it provides on-board graphics processor. This makes the need for a separate GPU redundant and people might undergo its purchase, especially in case of Ultrabooks and laptops. Further, Nvidia’s products such as GeForce GTX Titan are quite expensive with a price tag of $1,000. Hence, not everyone can afford to spend so much on gaming, especially when casual gaming has become so popular.
What about Tegra?
In order to diversify its product portfolio and reduce the risk of falling PC sales, Nvidia entered into the mobile processor segment. Tegra witnessed declining sales initially mainly because of stiff competition from Qualcomm (NASDAQ:QCOM), the maker of famous Snapdragons. These Snapdragons took away Tegra’s market share. Moreover, Nvidia earlier supplied the processor for HTC One X and Google Nexus 7 and was expected to continue to do so. But, both Google and HTC decided to shift to Qualcomm processor, which shattered Nvidia’s hopes.
However, Nvidia launched the NVIDIA Shield, an android running handheld gaming device, in June last year. This casual gaming device did attract some niche customers who would prefer to play games on such devices rather than on phones. Additionally, Audi introduced Tegra powered A3 in U.S., which helped the company sell its products in lots.
Despite showing up a good quarter and some improvements in its GPU segment, Nvidia looks risky. It faces stiff competition from players such as Intel and Qualcomm in the GPU and mobile processor segment, respectively. Further, Qualcomm is a market leader in the segment. Hence, it is difficult to rely on Nvidia’s mobile business, though it is making a number of efforts into it. I believe it is better to stay away from this stock and one can do better if money is put into some other company.