Time to Sell NVIDIA?

Graphics chip king and Motley Fool Stock Advisor recommendation NVIDIA (Nasdaq: NVDA  ) reported its fiscal fourth quarter of 2008 results yesterday. You don't even have to read the news to know how it read -- the stock's plunge tells it all.

But OK, just to be safe:

  • Sales dropped 16% for the year, then fell off the proverbial cliff in Q4 -- down 60%
  • Similarly, the company lost a nickel a share for the year, with most of this coming in Q4 --a $0.27 loss

According to CEO Jen-Hsun Huang, fiscal 2008 was "extremely difficult," and the economic environment in which NVIDIA operates is both "difficult" and "uncertain." And yet, as Huang tells it, 2008 was also "one of our best years of innovation." The company also boasted of licensing software development technology to big-league gamers like Electronic Arts (Nasdaq: ERTS  ) .

NVIDIA also spoke of the promise inherent in the arrival of netbook PCs, or "mini-notebooks." Companies like Hewlett-Packard (NYSE: HPQ  ) and Dell (Nasdaq: DELL  ) make the things, and NVIDIA is partnering with Intel (Nasdaq: INTC  ) to produce the "NVIDIA Ion Platform," marrying Intel's logical lobe with NVIDIA's right-lobe graphics technology to form a single "brain" to run the little comps. For all the promise new tech developments hold, NVIDIA had an undeniably bad year, and an even worse fourth quarter. But that doesn't necessarily mean you should avoid the stock.

Huh? Why not?
A couple weeks ago, a Wall Street analyst at Auriga USA made the prescient argument that the global chip industry is headed for a prolonged, "secular" downturn. Auriga called Applied Material's quarter exactly right, just as it's called Micron (NYSE: MU  ) , AMD (NYSE: AMD  ) right in recent months.

This speaks strongly in Auriga's favor, and if you hew to its view, then by all means -- sell NVIDIA. Personally, though, that's not the way my thinking runs. I think the PC will not go out of style, that people will eventually start buying 'em again, and that when they do, NVIDIA will resume earning money -- as it did every year for the past decade, 2008 excepted. When -- not if -- NVIDIA returns to its performance of yesteryear, eight bucks a share is going to look like a screaming bargain.

Of course, by then, that low price will be long gone.

Want to know more about the chip industry's "issues"? Read:

Fool contributor Rich Smith does not own shares of any company named above. Intel and Dell are Motley Fool Inside Value selections. NVIDIA and Electronic Arts are Motley Fool Stock Advisor recommendations. The Fool owns shares and covered calls of Intel. Why do we tell you this? Because The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (14)

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  • Report this Comment On February 11, 2009, at 5:43 PM, Aggiemedic01 wrote:

    From an academic rather than industry perspective, I'd suggest that there are two trends that Nvidia is well poised to benefit from. On the one hand there is a trend toward ubiquitous computing - that is to make lots of different everyday appliances "smart" - think programmable thermostats and electronic picture frames. To do this you will need to put chips in a lot more things than just "computers." The emphasis will be on power consumption and price. Nvidia's chips blend processing power for specific applications (mainly graphics) with very low power consumption.

    The second trend is parallel computing. For lots of task you need to manipulate a whole bunch of numbers in parallel rather than one after another. These tend to be higher-end number crunching systems, and as it turns out, graphics processors are good at this, and you can put them in a desktop machine, and they require less power (energy is expensive), and they are relatively cheap.

    I can't speak to the details of Nvidia's technology, but they find themselves in a position where they have a very nice hammer (a GPU) for addressing two of the most explosive emerging trends in technology. Both of these trends are pretty well established, and Nvidia looks to be well positioned to take advantage of them.

  • Report this Comment On February 11, 2009, at 7:09 PM, TMFDitty wrote:

    Appreciate the feedback, Aggiemedic01. New perspectives like this are most welcome. Also... nice CAPS accuracy!

    --Rich Smith

  • Report this Comment On February 11, 2009, at 7:34 PM, lution wrote:

    I disagree that this is a good time to buy. I work in the CAD industry and agree that Nvidia is the best, but companies and families are cutting back. Add in that the stock was up a significant % off the 52week low. I like Nvidia but I'd wait until things look like they are coming back. Put your money to work elsewhere where it will grow. This is dead money until then.

  • Report this Comment On February 12, 2009, at 12:00 AM, falieson wrote:

    Are you high? Compare nVidia to ATI on google stock? nVidia might be hurting but its stilling kicking ATI's butt!

  • Report this Comment On February 12, 2009, at 1:08 AM, falieson wrote:

    BTW - I only read the first half of the article before finding the evidence to write my previous reply... now having read it fully - I agree. Buy nVidia - they aren't going anywhere as its obvious they are beating out the competition.

  • Report this Comment On February 20, 2009, at 1:03 PM, TEBuddy wrote:

    How is it so obvious???? When Nvidia is being squeezed out of any IGP market, AMD and Intc want to only make thier own chipsets and no SLI for nehalem?

    Nvidia is not kicking AMD's butt in graphics performance, not even in the mobile graphics anymore.

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