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With game developers relying heavily on NVIDIA to achieve realistic effects, should you buy NVIDIA stock?
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The folks at graphics-chip specialist NVIDIA (NVDA 0.01%) has certainly been busy of late. In fact, NVIDIA stock is currently trading within 6% of its 52-week-high after the company released solid first-quarter results last month. The month before, NVIDIA management announced plans to return at least $1 billion to shareholders in the form of dividends and NVIDIA stock repurchases by the end of this year.
In addition, so far in 2013, NVIDIA has already unveiled both its new Tegra 4 and Tegra 4i LTE mobile processors, outlined roadmaps for more powerful processors going forward, and is close to releasing its own handheld gaming platform, Project Shield.
Anytime, anywhere
What's more, in addition to Shield, the company has released a number of other GRID-enabled products to support its end goals of being able to remotely provide a superior cloud-based graphics experience no matter what the capabilities of your particular device.
Even so, that doesn't mean NVIDIA won't also support other dedicated gaming consoles, such as Microsoft's (MSFT +0.01%) coming Xbox One, which largely competes with NVIDIA's long-term vision. Remember, a little over two weeks ago, I noted that NVIDIA seemed curiously eager to help make games even better for Microsoft's new Xbox One console.
After all, the company had just officially announced support for its PhysX and APEX software development kits for the Xbox One, which will certainly make it easier for the console's game developers to effectively simulate the real-world physics and movement of objects in their games.
Loyalty where it really counts
Now, in a company blog post Thursday, NVIDIA has taken the opportunity to point out some of the ways game developers have grown to rely on NVIDIA's technology for making the most immersive game titles possible.
For example, at the E3 conference this week, Tony Tamasi, NVIDIA's senior vice president of content and technology, reminded the audience that NVIDIA employs more than 200 dedicated gaming engineers who work closely with game developers, and whose "inventions are woven into more than 56% of AA or better games. And NVIDIA now owns more than 66% of the market for the discrete GPUs powering the most sophisticated PC games."
More specifically, here's a nice little graphic from the company which breaks down some of those "inventions" with NVIDIA's GeForce "Works" technology, including modules focusing on movement as specific as hair, clothing, particles, turbulence, light rays, and water:
Image source: NVIDIA.
Perhaps most impressive, however, is NVIDIA's aptly named Faceworks tech, which aims to capture every facet of how our faces ... ummm ... work.
In fact, just last month NVIDIA made available a Faceworks demo for anyone to download and play with on their own PC. To save you the trouble, though, check out this video of company CEO Jen-Hsun Huang showcasing Faceworks at the company's GTC Conference this past March:
So why does this matter?
Given these incredible technologies, and with the majority of the PC market using NVIDIA's solutions, Tamasi followed up with the following graphic to illustrate how PC is still by far the most important gaming platform in terms of both revenue and developers actively working on games for each platform:
Image source: NVIDIA
Of course, with both Sony's PlayStation 4 and Microsoft's Xbox One to be released in time for the holiday season this year, you can bet that gap will narrow going forward.
That doesn't mean, however, that NVIDIA will undoubtedly suffer in the gaming market going forward. Remember, NVIDIA is not only tirelessly working to diversify its products into mobile, but is also striving to ensure that its technologies are as pervasive as possible across all platforms. Perhaps most importantly, though, is that NVIDIA is increasingly garnering the loyalty of gaming developers, who matter most to the industry by creating content to fuel the profit-rich global gaming market.
So even though the world is currently excited for the prospects of console dependent gaming with the release of the PlayStation 4 and Xbox One for the time being, it's safe to say NVIDIA should have no problems both maintaining its record margins and continuing its streak of ridiculous profitability, despite the impending threat to its core PC gaming market.
And remember, NVIDIA also boasted cash and equivalents of $3.71 billion with no debt on its balance sheet at the end of last quarter, compared with its current total market capitalization at just $8.85 billion. As it stands, NVIDIA stock trades at just 15.5 times last year's earnings. When you back out all the cash, though, NVIDA stock's price to earnings ratio drops to under 9.
As a result, I'm convinced that anyone who owns NVIDIA stock now stands to be richly rewarded, even as shareholders wait for the company's cloud-based gaming ambitions to come to fruition down the road.