A Look at NVIDIA's Fantastic Quarter

NVIDIA beat analyst estimates for both earnings and revenue when it reported its fourth quarter earnings, with strong demand for its gaming GPUs surprising many given the recent product launches of rival AMD. Here's a look at the most important parts of NVIDIA's results.

Feb 13, 2014 at 6:00PM

While analysts were expecting a steep drop in NVIDIA's (NASDAQ:NVDA) earnings when the company reported its fourth quarter results, NVIDIA managed to significantly beat those estimates. Revenue rose on the strength of the company's GPU business, even though analysts were expecting a 5% decline, and guidance for next quarter surpassed the average analyst expectation. There was a lot to like about NVIDIA's results, and here are the most important parts:

PC gaming shows strength

Geforce

GeForce GTX 780TI. Source: NVIDIA

NVIDIA's GPU revenue rose 14% year-over-year, driven by strong sales of high-end GPUs. Sales of GeForce GTX GPUs rose by nearly 50% year-over-year, reflecting strong demand from gamers. Revenue from notebook GPUs fell in line with the overall decline in the PC market, but the strength at the high end more than made up for the weakness at the low end.

This performance is particularly impressive given that competitor AMD (NASDAQ:AMD) released a new line of GPUs during the quarter, forcing NVIDIA to cut prices on some of its highest-end parts. AMD's GPUs were reportedly selling out after launch, but I pointed out in my NVIDIA earnings preview that demand from cryptocurrency miners was responsible for at least some of this demand, since AMD's GPUs are better suited for that particular application. Those sell-outs may have actually helped NVIDIA, since gamers were unable to find AMD's high-end cards available for purchase, and I suspect that this is part of the reason behind NVIDIA's strong gaming GPU performance.

A growing enterprise business
Revenue from NVIDIA's Tesla line of accelerator cards for high-performance computing applications grew by more than 20% year-over-year, with revenue from Quadro workstation GPUs rising by 4%. NVIDIA partnered with IBM during the quarter in a deal that will put NVIDIA's Tesla cards into IBM's servers, allowing for the acceleration of various enterprise applications, and this the represents first step for NVIDIA in capturing what the company has estimated to be a $3 billion annual opportunity.

Along with Tesla, NVIDIA's GRID virtualization technology is starting to gain steam. The number of enterprise customers evaluating the platform rose by 46% from the previous quarter, with the last reported number being around 200 customers. NVIDIA pointed out in its conference call that while the enterprise IT buying process is long, contracts tend to be long term. Once customers begin adopting GRID, it could become a major new source of revenue for the company.

The potential of Tegra

Tegra

Source: NVIDIA

NVIDIA's mobile business, comprised of its Tegra line of mobile processors, declined by 37% year over year in the fourth quarter and by 48% for the full year. The Tegra division is responsible for both revenue and earnings declining during for full year, but 2014 looks quite a bit more promising.

Tegra 4, launched in 2013, failed to garner as many design wins as its predecessor. Part of the problem was that the Tegra 4 didn't include an integrated modem, making competing integrated products more desirable for OEMs. That all changes in 2014 with the launch of the Tegra 4i, a variant of the Tegra 4 that includes an integrated LTE modem.

Also set to launch this year is the Tegra K1. The K1, which was announced at CES earlier this year, is the first Tegra chip to be based on NVIDIA's desktop graphics architecture. The chip provides a huge increase in graphics performance compared to previous generations, and it should give NVIDIA the most graphically powerful mobile chip on the market when it starts shipping in devices later this year.

NVIDIA is targeting high-end devices, like so-called "superphones" and tablets, with these chips, and it's leaving the mainstream phone and tablet market to its competitors. Automobiles are another focus, with NVIDIA aiming to have Tegra power both in-car electronics as well as driver assistance features. This was a big focus of NVIDIA's CES talk, and the vast processing power of the Tegra K1 is perfectly suited for these types of applications.

So while the Tegra business looks grim right now, the potential is enormous.

Still an inexpensive stock
Even with Tegra draining profits, NVIDIA still produced $580 million of free cash flow in the full year, or about $1 per share. With roughly $5.70 per share in net cash, this puts the current stock price at just 11.5 times the free cash flow after backing out the net cash. With growth potential in all of NVIDIA's businesses, the stock seems significantly undervalued.

The bottom line
NVIDIA had an excellent quarter, with gaming GPUs showing strength even as the PC market continues to contract. The enterprise business is growing, with GRID being tested by a rapidly increasing number of potential enterprise customers, and the mobile business should have a much better year in 2014. NVIDIA remains an undervalued stock, and once the Tegra business becomes profitable, the company should return to earnings growth.

NVIDIA's not it, but here's The Motley Fool's top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Timothy Green owns shares of Nvidia. The Motley Fool recommends Nvidia. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers