NVDIA: Worth Considering For Your Portfolio

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May 18, 2015

NVIDIA (NVDA, Financial) a reliable chip manufacturer for various devices, can be a good pick for technology investors. The company is one of the market leaders as manufacturers of various cards and processer that are main ingredients for various gadgets like gaming consoles, smartphones and tablets.

Strong Results

The company recently declared its Q1-2016 results. Revenue was $1.15 billion, up 4% year-on-year and significantly higher than the company’s anticipated outlook. The growth in the revenue was propelled by strong gaming market that leveraged the GPU sales. The high computing processors and cloud also influenced the revenue growth for the company. The GPU (Graphical Processor Unit) revenue recorded growth of 5% year over year, to record $940 million. While Tegra processors revenue gained 4% year over year to record $145 million.

Tailwinds

PC gaming for NVDIA contributes to around 40% of the overall gaming business. NVDIA has recently launched an enhanced GPU ‘GEforce’ this will influence its growth and capture wider share of the PC gaming market. It is reported that over 100 million PCs use this high end GPU. The PC gaming market has been expanding at a brisk pace. This market that stood around $26 million in 2014 is anticipated to reach $35 billion by end of 2018. NVIDIA has already recorded a CAGR of over 50% in last three years in the PC and the net book gaming market and with the market size the growth momentum should continue. NVIDIA is certain to gain from this mammoth PC gaming market and with new launch of PC games will propel the sales of the new NVIDIA ‘Geforce’.

Among its competitor, AMD also eyes this gaming market but faces a stringent competition from NVIDIA. The processors of NVIDIA are more cost effective as compared to AMD’s processor and the cost conscious customers provide higher sales of NVDIA’s processors as compared to AMD. Furthermore not just the cost, but NVIDIA's GeForce GTX Titan Black graphics card has also gained momentum, mainly for its enhanced graphics. NVIDIA’s Maxwell based net book GPU is gaining higher popularity among the cost conscious gamers and this further propel momentum to the company’s sales. The research company further anticipates the global gaming market to stand around 117.9 billion in 2015 at a compound annual growth rate of 13.7% from 2011 to 2015.

The automotive market is another area which can be the driving force for the growth of the company. Various automobile companies are adding more instrumentation for a feature rich dashboard and this creates strong market for high end Tegra K1 processors. Audi and Volkswagen have already incorporated Tegra powered instrumentation in their vehicles, and this will have strong branding impact on Tegra as it has been embraced by these automobile giants.

Outlook

Looking at the growth in the PC gaming industries, the company anticipates its revenue to be around $1.1 billion +/- 2%, in the second quarter. Strong response from the data center market has also been the driving force that leveraged the company for this revenue target in the second quarter.

Conclusion

The fiscal year started on a high note for the company as it delivered strong results. The PC gaming market is also gaining a global traction which is a good sign for the company’s GPU and graphic cards. The upcoming quarters should also witness similar growth, based on the demand of the GPU in the low end and high end gaming market. Investors’ interest is also safeguarded by the company’s share repurchase programs and regular dividend with a planned payback of $1 billion to be executed in fiscal 2015. I feel this company is worth considering for your portfolio.