NVIDIA Stock Is a 20-Year Buy

The Tegra K1 should get a boost from tablets and other devices we can't even imagine yet. Credit: NVIDIA.

Shares of NVIDIA (NASDAQ: NVDA  ) stock were up slightly this week on news that its Tegra K1 mobile chip is powering Google's (NASDAQ: GOOGL  ) (NASDAQ: GOOG  ) experimental Project Tango tablet. A developer kit priced at $1,024 goes on sale later this year.

There's plenty of hype to support the news. From NVIDIA's blog post describing the news:

Game developers could, for example, use it to paint a 3D virtual battlefield in your living room. Or create large scale virtual and augmented reality experiences. Real estate companies could build interactive, 360-degree "fly through" tours. Interior designers could scan a client's home and test design ideas, such as moving walls or inserting furniture. Retailers can guide the user to specific places or products.

Don't buy the news, buy the trend
Much work is to be done before any of these lofty dreams can be made a reality. First, developers have to pony up a hefty sum for a developer kit. They'd then have to commit the resources to write breakthrough code just for the Tango tablet. Finally, Google would have to set up marketing, manufacturing, and distribution for the new tab. No easy task for a company that's had trouble forecasting and meeting demand for its Nexus devices.

Does that mean you should avoid NVIDIA stock? Hardly. Instead, the Tango news brings into sharp relief two things that make this business interesting:

1. Tegra K1 is far enough ahead of its time that it's being used in experimental devices. While there are plenty of high-powered chips out there, the consensus seems to be that Tegra K1 and its 192 graphics cores perform about as well as any desktop PC processor, but in a mobile device. No wonder Google chose the chip for its Tango experiment.

2. NVIDIA trades like a modest-growth company. Analysts forecast just 7% annualized earnings growth for NVIDIA over the next five years. The stock also trades for less than three times sales and two times enterprise value. All perfectly acceptable figures if Wall Street is right about NVIDIA's growth prospects. Yet I'm not so sure, especially when you consider that trends favor a shift to high-powered mobile devices that will need the sort of horsepower Tegra provides right now.

Add it up, and I think NVIDIA stock is one to buy and hold for the next two decades. Have a bear argument to share? Do you own the stock? Leave your comments in the box below.

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Google's Project Tango tablet proposes to go where no other slate has. Credits: Google, YouTube.


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  • Report this Comment On June 10, 2014, at 9:57 PM, longtbt wrote:

    Analyst's estimates for next yr - Jan2016 - earnings

    of $1.02 with a discount rate of 12% and 10 yr terminal rate of 4% still only puts the stock at

    DCF of $15. No thanks....waiting for a pullback.

    cheers

  • Report this Comment On June 11, 2014, at 5:36 PM, jwtrotter wrote:

    That last comment totally ignores the cash which would be putting the price per share over $21/share. There's no pullback to $15.

  • Report this Comment On June 11, 2014, at 9:40 PM, youngblood58 wrote:

    Anyone who tells you they know where technology is going to be in 3 years is full of it. I am a Nvidia shareholder and I would never propose to hold their stock for 10 or 20 years.

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