Amid the market correction, NVIDIA (NVDA, Financial) has lost almost 15% of its value in the last few days. NVIDIA’s shares have taken a beating due to a recent downgrade by Barclays and a bad earnings report by Intel (INTC). I don’t really like PC-exposed stocks; however, after the recent selloff, I think NVIDIA is trading at a conservative valuation and the stock can move much higher from the current levels.
I believe investors are overestimating the PC threats to NVIDIA as the company has been diversifying its business model. Although PC sales are expected to slow down in the future, NVIDIA has already expanded into many other markets that will fuel the company’s future growth. One such market is the drone market.
NVIDIA strategizes to equip drones with high performance computing facilities with the help of its newly designed Jetson TX1 developer kit. The kit is intended to deliver better performance than all other developer boards available in the market.
Drones need perfect navigation capabilities, and the Jetson TX1 kit is designed in a way to fulfil all the requirements of drones to enable such capabilities. TX1 consists of 256 graphics cores to route images. It also consists of “deep-learning” method, which prevents drones from collisions and helps to identify objects.
Jetson TX1 is three times faster than its old version, which delivered 300 gigaflops of horsepower. The developer board is now available at Amazon and Newegg for around $599. At present, it is only available in the U.S., but soon will be available worldwide this year.
With the drone market expected to grow significantly in the decades to come, NVIDIA will have an early mover's advantage to benefit from this uptrend. Diversification has been one of NVIDIA’s key strengths and will likely make the stock a winner in the long-term.
The potential of the drone market is vast, which is why many companies are already trying to gain a commanding lead in the sector.
Recently, Qualcomm (QCOM, Financial) lost Galaxy S6 as well as Galaxy Note 5 designs due to its Snapdragon 810 processor’s overheating problem. But the world’s largest chip maker company is pursuing growth in the drone market. The company’s chip manufacturing business, which accounts for more than half of its non-GAAP revenue and 15% of its pre-tax earnings prior quarter, has been losing market shares to its rivals in terms of low-end as well as high-end smartphone markets.
Qualcomm faced many problems in the smartphone and tablet section, so the company plans to move its needle toward the drone market, as the drone market is relatively a fresh and an infant market. In September 2015, the company reveals a reference design for drones called Snapdragon Flight. This system appears to be of low cost as compared to other drones and has the capability to fly autonomously. Yuneec, DJI’s rival, will launch a drone based on Snapdragon Flight design this year.
Given Qualcomm’s massive cash reserve, the company can also enjoy early mover's advantage by pumping money into research and development. The company is losing market share in its core business, and plans to make up for the loss by diversifying its business. Qualcomm is already threatening RF makers like Qorvo (QRVO) and Avago (AVGO) and it will not be long before the company enters the drone market as well.
Final words
Summing up, I think NVIDIA and Qualcomm’s aggressive stance and diversifying efforts will help these companies be a winner in the long-term. However, due to Qualcomm losing market share in the mobile segment at a rapid pace, I would only consider NVIDIA as a viable investment option for now. The stock has lost considerable value over the last few days, and has opened up a great long-term opportunity for investors.
