NVIDIA Zigs While Intel and AMD Zag

In preparation for Thursday night's second-quarter report, I explained that NVIDIA (Nasdaq: NVDA  ) is riding the mobile pony hard. "In this report, any success on the graphics side would just be bonus gravy on top of the burgeoning Tegra line's rise to power," I said.

The report is in, and CEO Jen-Hsun Huang couldn't agree more. "Our investments in mobile computing and visual computing are both paying off," he said as sales increased a modest 2.7% year over year to land at $1.04 billion. At the same time, non-GAAP earnings fell 16% to $0.27 per share. The sales tally was almost exactly what your average analyst had expected, but earnings nearly doubled the Street's $0.14 target.

NVIDIA shares jumped as much as 4.7% overnight before settling in to more modest gains on Friday morning. Nomura Securities hailed the report with a reiteration of its existing "buy" rating and $18 price target. Strong guidance may point to some of that unexpected gravy in the form of good graphics-chip sales this fall, the firm believes.

Indeed, NVIDIA predicts revenue growth of about 12% while rivals Advanced Micro Devices (NYSE: AMD  ) and Intel (Nasdaq: INTC  ) both expect slower growth in the upcoming quarter. Management cited contract wins in notebooks from every leading system builder, so there's certainly something to the graphics-related theory.

On the other hand, NVIDIA also provides the mobile brains form Google's (Nasdaq: GOOG  ) popular Nexus 7 tablet and the upcoming Microsoft (Nasdaq: MSFT  ) Surface slate. The Tegra 3 processor also powers HTC's flagship handset, the One X, which might not be making much of a mark on the enormous smartphone market but still might outsell leaders in the much smaller tablet sector.

This company made a brilliant decision years ago to move away from selling graphics chips into stagnating systems. Instead, NVIDIA is a rising star in the booming mobile-computing segment. It's always nice to be a trailblazing leader in a trillion-dollar market revolution. But Intel wants a piece of the pie too, and NVIDIA would be wise to consider the potential threat of the Atom processor.

We've created a premium report on Intel that details its dominance in servers, notebooks, and desktops as well as the challenges ahead in the mobile market. Get your copy, and enjoy a full year of timely updates on the swinging chip sector.

Fool contributor Anders Bylund owns shares in Google but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Intel, Google, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Intel, NVIDIA, and Google, writing puts on NVIDIA, and  creating a bull call spread position in Microsoft. We Fools don't all hold the same opinion, 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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  • Report this Comment On August 11, 2012, at 8:45 AM, yacov070 wrote:

    I DON'T BELIEVE THIS STOCK. iT'S BEEN A MOTLEY FOOL'S STOCK OF THE FUTURE AND IT ACTS LIKE A DOG. WHEN OTHER COS. WOULD COME OUT WITH GREAT REPORTS THEIR STOCK WOULD BE UP $3.OO PLUS, BUT THIS MOTLEY FAVORITE WAS LOWER FOR THE DAY. PLEASE RESPOND.

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