What to Expect From NVIDIA for the Rest of 2012

NVIDIA (Nasdaq: NVDA  ) reports its second-quarter earnings next week, but many analysts lack confidence in the chipmaker's ability to deliver upbeat financials for the period. But now that we're more than halfway through the year, it's a good time to check the pulse of our investments. Shares of NVIDIA are down more than 2% year to date. Still, tracking where a company has been can offer valuable insight for the future. With that in mind, let's take a closer look at NVIDIA and see how the rest of the year should shake out for the graphics chipmaker.  

Growth in its customer base
In addition to being a leader in graphics and multimedia processing for PC computers, NVIDIA is also well positioned within the smartphone and tablet market. In fact, the company's processors were recently chosen to power Google's Nexus 7 tablet. Similarly, NVIDIA's high-performance Tegra chips made the cut for Microsoft's (Nasdaq: MSFT  ) upcoming ARM Holdings-based Surface device. The Microsoft Surface tablet is expected to hit shelves in October and marks the software giant's first true foray in hardware.

NVIDIA is also capturing new business on the PC front. Apple (Nasdaq: AAPL  ) went with NVIDIA's Kepler architecture for its new Retina Display MacBook Pro line. This was a key win for NVIDIA, considering the graphics specialist beat out rivals for the high-profile contract.

One thing's clear: Your processors don't make it into Google, Microsoft and Apple devices without being best in class.  

The mobile advantage
Looking ahead, we should see NVIDIA's acquisition of Icera start to pay off. Using Icera's wireless technology, NVIDIA's new 4G cellular chips are expected in tablets later this year. More importantly, by integrating 3G and 4G capabilities with its Tegra processors, NVIDIA will be able to better compete with rival mobile-chip maker Qualcomm (Nasdaq: QCOM  ) .

However, moving in on Qualcomm's turf won't be easy. While NVIDIA's graphics cards have the right vision for Apple's new Retina Display MacBook Pros, it was Qualcomm that landed the coveted spot in the Mac maker's highly anticipated iPhone 5.

Competitive landscape
The rise of smartphone designs has created immense opportunities for chip manufacturers -- opening a window that NVIDIA needs to squeeze through. Meanwhile, the integrated approach is nothing new to Qualcomm, which now maintains a critical lead over rival chipmakers in the industry. According to Strategy Analytics, Qualcomm claimed nearly half of the mobile-chip market last year, partially because of strong demand for its 3G and 4G chips. But if NVIDIA has its way, the graphics-card expert hopes to eat into that share.

Tablets and smartphones running on NVIDIA's new wireless chips will also be able to communicate and share multimedia with high-def TVs. Eventually, this will allow serious gamers to easily stream games from their mobile devices directly to their home television -- not dissimilar to Apple's AirPlay technology. Of course, competitors are already in the game.

Both Qualcomm and Texas Instruments previously announced their support for the Miracast display standard. Still, NVIDIA will try to set itself apart from the others by focusing on the wireless gaming segment. Wirelessly streaming images, videos, and games from mobile devices to hi-def TVs could be the future of television, and NVIDIA is well positioned to capitalize on this shift.

Drivers of change
Outside the gaming and mobile industries, NVIDIA is also expanding into the auto sector. As my fellow Fool Alex Planes pointed out earlier this month, the company's Tegra processors now power infotainment systems in various cars, including the all-electric Tesla (Nasdaq: TSLA  ) Model S sedan.

Tesla began delivering its Model S cars last month. For those unfamiliar, one of the notable features of the zero-emission vehicle is its 17-inch touchscreen infotainment and navigation system in the center console. The sleek screen is powered by NVIDIA's Tegra visual computing module, or VCM.

Thanks to NVIDIA, Tesla drivers can enjoy crisp 3-D graphics and maps without draining the car's battery. I have no doubt that the Tegra chips debut in Tesla's 17-inch digital systems will inspire other automakers to ink deals with NVIDIA down the road.

Playing to win
Despite the many growth opportunities awaiting NVIDIA around the bend, I'm afraid a weak economy may pressure earnings next week. That said, there's plenty of upside in this name for patient investors. Ultimately, I think NVIDIA's near-term vulnerability is the price it must pay for long-term profitability.

Shares currently trade at just over $13 and are backed by a healthy balance sheet, not to mention a long-term debt balance that continues to lessen from each year to the next. If you're not yet ready to jump into shares of NVIDIA, instead I encourage you to read this free report from The Motley Fool's top analysts, titled "The Only Stock You Need to Profit From the New Technology Revolution." In it you'll discover one stock that is changing the face of business and collecting massive profits along the way. Get your free copy while it's still available. Or to get the full scoop on the Apple investment thesis, you can pick up your copy of the Fool's new premium report on the iEverything powerhouse.

Fool contributor Tamara Rutter owns shares of Apple, Qualcomm and Tesla Motors. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Qualcomm, Google, Tesla Motors, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Tesla Motors, Google, Microsoft, Apple, and NVIDIA, writing puts on NVIDIA, and creating bull call spread positions in Apple and Microsoft. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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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 August 01, 2012, at 4:58 AM, rsinj wrote:

    NVDA? Long term debt balance? It's only $20 million Fool!

    Here, let's put it this way. You have $1.50 in your wallet, you owe your friend a penny. Is there any reason to even bring up that fact in a discussion? Balance is lessening each year? Again what color is the sky in your world? It's gone from $24 million to $20 million while cash in the bank has gone to over $3 billion - why even bring it up?

    So, over the past couple years, you've gone from owing a penny for the 80 cents in your pocket, to a penny for the $1.50. This is in contrast to a company like Microsoft that owes 30 cents for the $1.50 in its pocket. Again, why would anyone even mention this with regard to NVDA and phrase it as "a long-term debt balance that continues to lessen from each year to the next"? Most people wouldn't mention it or simply say NVDA's long-term debt is virtually non-existent.

  • Report this Comment On August 02, 2012, at 11:37 PM, jwtrotter wrote:

    Well, investors may be lacking confidence to invest because I don't know, let's see . . how about people like yourself that give distorted VERY superficial views on the company when they try to recommend the stock. The first comment is dead on . . how about clarifying that the debt you mention is literally NOTHING compared to the cash they have.

    On top of that, your comments about this quarter are also out of whack because you don't account for the way Nvidia tracks their fiscal quarters and year, but don't let that get in the way of making the company out to be such a 'risky' debt ridden play.

    Geez.

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