- Nvidia Analysis


Feb 22, 2016

Remember those days (what was it 2013/2014?), when Nvidia and Qualcomm were locked in a battle to dominate the Android smartphone CPU business. Nvidia's Tegra v/s Qualcomm's Snapdragon ? I placed my bet on the Snapdragon, forgetting all about Tegra and Nvidia...Until recently, when Nvidia popped back up on my radar and I decided to take a deeper look. 

It turns out, as per The Motley Fool, that the Tegra business is in the midst of a big pivot and a super interesting one at that e.g. Did you know the Tegra powers software in Tesla's cars ? The detailed analysis is below but it looks like Nvidia (TCKR: NVDA) is a great long term growth stock and probably makes sense to pick up the next time there's a market dip.

Pros

Automotive

+  Tesla's cars' software is being powered by Nvidia technology. As Tesla's delivery volumes grow in the future, Nvidia should benefit.

+  Nvidia is also powering next gen car infotainment systems for Audi, Honda and BMW. As these newer models come to production and sales ramp up, again Nvidia should benefit.

+ Nvidia gets that autonomous driving platforms, requiring tremendous visual computing power, are a big part of the automotive future. They already have solutions in the market, like the Drive PX, that are underpinning autonomous driving at companies like Volvo and Mercedes Benz. As carmakers go mainstream with autonomous cars, this segment of Nvidia's business could potentially explode.

Gaming

+ Yes the PC market is shrinking, but, as per PC World, the high end gaming PC market is bucking this trend. Take a look at the top 10 gaming PCs in 2015, over at PCMag. 8 of the 10 have Nvidia GPUs (Graphics Processing Units).

+ Additionally the regular PC market is likely to stabilize in 2016, with Windows 10 picking it up.

Virtual Reality

+ True Virtual Reality headsets, like Facebook's Oculus and HTC's Vive, whose consumer editions are starting to go live, need base PCs with high end graphics computing provided by, you guessed it..Nvidia. As volumes in this market ramp up, so should Nvidia's numbers.

Cons

- AMD, Nvidia's primary competitor, is on schedule to launch their next generation chips (Polaris) around April this year. There is speculation at WCCF Tech that Nvidia's competing next gen chips (Pascal) might be delayed. In a market that is defined by visual computing performance, this could result in AMD managing to gain back market share at Nvidia's expense.

- Automotive is a small part of Nvidia's overall revenue (11%) and a bulk of the revenue comes in from Notebook GPUs and thus is susceptible, if the slowdown in the PC market continues.

- With the recent blowout earnings on Feb 17, 2016, the stock is up ~ 14% in 3 trading days since. At this point, you have missed out on the momentum from the earnings. Significant gains are likely to take some time.

Notables

+ Nvidia pays a dividend as well. It will pay $0.115 per share on March 23, 2016 to shareholders of record on March 2, 2016.

Disclosure

I am planning to take a long position in NVDA in the short term.
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