Why This Chip Stock Could Be an Outperformer

Mobile gains and computing growth place this chip maker in a good position to grow.

Mar 14, 2014 at 7:00PM

Santa Clara-based chipmaker NVIDIA (NASDAQ:NVDA) recently released strong fourth-quarter results. NVIDIA's stock has received a massive boost in the past year as the company continues to put in strong performances on the back of increasing sales of its graphics chips. Also, with a rebound in sales of its Tegra mobile chips, NVIDIA investors have found yet another reason to be optimistic about the company's prospects. In addition, NVIDIA seems to be gaining an upper hand on prime rival Advanced Micro Devices (NASDAQ:AMD), both in terms of market share and product development.

Positives all around
NVIDIA's recent results were decent, with quarterly revenue increasing 3% to $1.14 billion. Non-GAAP earnings amounted to $0.32 per share in the fourth quarter, up from $0.26 per share in the third quarter and well ahead of the $0.18 per share consensus estimate. This outperformance is expected to continue in the future since NVIDIA is riding on a lot of tailwinds, as we shall see.

First off, NVIDIA's GeForce business is performing quite well as a result of high-end PC gaming. The company sees good business opportunities in the future because of the launch of some excellent graphics-heavy games such as Call of Duty: Ghosts, Black Flag, Assassin's Creed IV, and Batman Arkham Origins. Further, NVIDIA is expecting better GeForce GTX sales in Asia due to the growing popularity of games such as Blade and Soul, which are resource-heavy compared to other games played in China. NVIDIA is looking forward to the boom in the PC gaming market, which is expected to hit $20 billion this year.

Also, NVIDIA has entered into a partnership with IBM (NYSE:IBM) for its Tesla GPUs, and this should strengthen its GPU business further on the enterprise front. The company has a lot of expectation from the Tesla GPU accelerators. The integration of Tesla in Europe's fastest supercomputer, as well as Ansys fluid, which is one of the most widely used commercial high-performance computing applications, indicates stronger performance from NVIDIA going forward. 

The presence of NVIDIA's Tesla in IBM's servers and enterprise hardware is good news for the chip maker. As Foolish contributor Timothy Green points out, IBM had to bring a differentiating factor into its hardware in order to perk up sales. IBM's Power systems, which are driven by IBM's Power architecture, faced a lot of weakness in the previous quarter, with sales dropping 38%. So, the integration of NVIDIA's GPU could drive sales of IBM's servers and hardware because of NVIDIA's expertise in accelerating hardware.

Tegra and GRID also gaining steam
Also, NVIDIA's GRID is also gaining momentum, with trials increasing 46% quarter over quarter. Further, in the mobile segment, it expects more from its latest Tegra K1, which is the first processor that delivers PC-class graphics, according to NVIDIA. Moving on, in the automotive segment, NVIDIA is seeing stronger adoption of the Tegra K1 because of deployment in driver assistance systems and self parking systems.

What is even more impressive is that NVIDIA has stolen a march over its arch-rival AMD, which was looking to make some foray into tablets with its semi-custom chips. AMD hasn't focused much on the mobile space, but lower sales of notebooks and computing chipsets are probably forcing it to look at other options, and the tablet space was one such option. However, with NVIDIA already releasing a reference tablet for the Tegra K1, it could leave AMD way behind in the race as tablet makers will have an early start if they are to integrate the Tegra into their devices.

Bottom line
NVIDIA is making a lot of good moves. The company looks to be in a good position to grow further with strong performances from its mobile and computing businesses, and innovations such as the Tegra K1. Finally, a dividend yield of 1.90% makes NVIDIA even more attractive, so investors should definitely look at this stock for their portfolio.

Looking for growth? The Motley Fool has you covered
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Mukesh Baghel has no position in any stocks mentioned. The Motley Fool recommends Nvidia. The Motley Fool owns shares of International Business Machines. 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