How NVIDIA Hopes to Reignite Its Growth

On Thursday, NVIDIA (NVDA 3.56%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

The mobile-device space has given chip makers like NVIDIA huge potential for growth, but fierce competition throughout the industry has created winners and losers in each market niche within the sector. Let's take an early look at what's been happening with NVIDIA over the past quarter and what we're likely to see in its report.

Stats on NVIDIA

Source: Yahoo! Finance.

Why are expectations for NVIDIA's earnings lower?
Analysts have dramatically downgraded their view on NVIDIA's earnings in recent months, cutting their first-quarter estimates by more than half and slashing more than $0.25 per share from their full-year fiscal 2014 expectations. Yet the stock has performed well, rising 13% since the end of January.

One reason for the stock's success may be that NVIDIA has come out with several promising products. The company unveiled its Tegra 4i mobile chip in February, which offers integrated LTE-network capability and could help NVIDIA move more dramatically into the smartphone space. Archrival Qualcomm's (QCOM 0.65%) Snapdragon 800, which is the closest competitor to the Tegra 4i, is more than twice its size, according to NVIDIA. It'll likely take until the end of the year for devices using the Tegra 4i to come to market, but NVIDIA stands to challenge Qualcomm's traditional dominance of smartphones as a result. Moreover, the company will use a Tegra 4 processor for its Project Shield portable gaming device, which will show off NVIDIA's traditional graphics dominance as well as providing an ecosystem for showing gaming and streamed-programming content on HDTVs.

Yet NVIDIA still faces the structural challenge of having some of its most lucrative potential markets closed off to it. Although NVIDIA has done a great job of tapping the tablet market, including the Nexus and Surface RT lines, best-sellers like the iPad and Galaxy Tab are off-limits to the company because their makers keep processor-design in-house. Rumors that Qualcomm has captured the next-generation Nexus 7 processor spot from NVIDIA are also troubling.

Moreover, other competitors aren't standing still, either. Broadcom (NASDAQ: BRCM) recently came out with a discrete LTE chip that it claims is smaller than any other on the market. That will give device makers the choice of whether they prefer integrated or discrete LTE functionality, and Broadcom's hoping to keep a share of the market even in the face of NVIDIA's advances.

In NVIDIA's quarterly report, watch for news about device-maker adoption of the Tegra 4i as well as confirmation about the Nexus 7. NVIDIA has a lot of potential, but the company needs things to go right in order to make the most of the opportunity.

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