The Big Money Says to Buy NVIDIA

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: NVIDIA (Nasdaq: NVDA  ) . Are institutions bullish or bearish when it comes to this maker of graphics-rendering computer chips?

Foolish facts

Metric

NVIDIA

CAPS stars (5 max) *****
Total ratings 5,213
Percent bulls 96.1%
Percent bears 3.9%
Bullish pitches 817 out of 861
Highest rated peers Integrated Device Technology, DSP Group, Power Integrations

Data current as of Nov. 4.

A two-time pick of our Motley Fool Stock Advisor service, NVIDIA is down 33% year-to-date, falling to prices that most Fools find irresistible.

"I'll bite on a 25% discount from share prices 30 days or so ago. NVIDIA Corp, like many graphics chipmakers has had a rough time since October of 2007 as embedded graphics from Intel and AMD chipped into their markets. The need for a proprietary video card when you have embedded video is becoming less and less except for hardcore gamers and special graphics applications," wrote All-Star investor TSIF in May.

Shares of NVIDIA have barely budged since, even as the company's balance sheet and returns on capital have mostly improved.  Not that NVIDIA is without problems. Struggles with its Fermi graphic cards have weighed on margins.

Valuation is a small concern with the stock trading for more than 29 times trailing earnings. But if management can fix Fermi's problems and capitalize on opportunities in the mobile and supercomputing markets, the growth that multiple implies should return.

Institutional ownership history

Top Owners

2007*

2008*

2009*

Latest*

Fidelity Investments

7,333,628

9,546,555

73,176,532

71,701,115

T. Rowe Price Group

608,706

5,355,129

2,998,326

52,758,601

PRIMECAP Management

20,935,094

36,888,574

36,140,912

38,984,691

BlackRock

13,663,407

1,612,662

47,018,342

35,228,736

The Vanguard Group

16,492,220

16,981,482

18,983,445

20,589,651

TOP 25 TOTAL

135,452,873

250,492,205

303,769,765

340,645,906

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

From this table, it’s clear institutions believe in NVIDIA's growth story. Not only are they buying year-over-year, they purchased more than 38 million shares from January to June. They're betting on exactly the sort of turnaround that TSIF describes above.

Most startling is how the biggest of the Big Money operators have piled into the stock. Growth funds have been the biggest spenders. Fidelity Blue Chip Growth (FBGRX) purchased 4.9 million shares during the reporting period ending on September 30, Morningstar reports.

Competitor and peer check-up

Company

Institutional Ownership

Insider Ownership

Advanced Micro Devices (NYSE: AMD  )

68.01%

0.24%

ARM Holdings (Nasdaq: ARMH  )

86.39%

0.55%

Intel (Nasdaq: INTC  )

61.60%

0.05%

Marvell Technology (Nasdaq: MRVL  )

68.89%

13.00%

NVIDIA

73.97%

4.06%

QUALCOMM (Nasdaq: QCOM  )

76.90%

1.51%

Source: Capital IQ. Data current as of Nov. 4.

To me, NVIDIA looks like the most attractive play in this group. Institutions own plenty of shares, yet there remains room for them to buy more. Meanwhile, management and other insiders own enough of the business to benefit directly from a big rally.

And they haven't sold since last December, when the stock was trading for close to $17 a share. That's a bullish sign; it suggests that management and Wall Street are united in their belief that shares of NVIDIA are cheap.

Now it's your turn to weigh in. Would you bet on NVIDIA at current prices? Let us know what you think using the comments box below. You can also recommend other stocks for Tim to evaluate by sending him an email, or replying to him on Twitter.

Interested in more info on NVIDIA? Add it to your watchlist here by clicking here.

NVIDIA is a Motley Fool Stock Advisor selection. Intel is a Motley Fool Inside Value pick. Motley Fool Options has recommended subscribers buy Intel calls. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn’t own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Intel, Marvell Technology, and QUALCOMM and is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 04, 2010, at 11:33 PM, locololo2 wrote:

    it was the first stock I beter bought :)

  • Report this Comment On November 04, 2010, at 11:33 PM, locololo2 wrote:

    ever*

  • Report this Comment On November 05, 2010, at 6:11 AM, awenshok wrote:

    Another excellent example of an analysis of 'stuff' you can get anywhere by analysts who have never even met anyone in the company and would likely faint if they did.

  • Report this Comment On November 05, 2010, at 8:09 AM, MAURIZIO400cc wrote:

    awenshok,

    come on man.

    if you have got something to say here, why not just say it?

    if that does not make you faint, let me have some of your wisdom. I own this baby.

  • Report this Comment On November 06, 2010, at 9:35 AM, Scunnerous wrote:

    Forget "analysts" - read what the people in the industry and trade-mags are saying: a week after nVidia played its catch-up card, AMD/ATI rolled out its next-gen DirectX-11 chips with a significant performance:price ratio gain. nVidia is too far down the curve to take a big risk on them right now... from my POV. They've also pissed on their OEMs by entering the retail video card business, which means at least some turmoil in the channel; also consider that there is some loyalty among buyers to the OEM names, like XFX, so they're hands are a little too close to the fire for my liking.

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