If there's a tech stock that's a value in plain sight, it's NVIDIA (NASDAQ:NVDA). For those of you unfamiliar with the name, it is a fabless semiconductor company founded in 1993 with the sole purpose of developing and selling dedicated "graphics processing units," which are specialized pieces of silicon for processing 2D and 3D graphics. In the 90's and early 2000's, there were plenty of PC graphics card players, but NVIDIA emerged victorious with only one major competitor left standing -- AMD (via its acquisition of ATI Technologies in 2006.)
ARM enables NVIDIA to participate in the future of computing
Times have changed, however, and leadership in discrete PC graphics cards isn't enough to drive a growth story going forward. The good news is that the company's graphical strengths play perfectly to where the computing market is headed: mobile systems-on-chip. In fact, this transition is the best thing that could have happened to the company. NVIDIA had long sought to build its own PC microprocessors based on Intel's (NASDAQ:INTC) X86 architecture, but couldn't do so as Intel wouldn't license it out.
Thanks to support for the ARM (NASDAQ:ARMH) architecture on Google's (NASDAQ:GOOGL) Android platform (which is the largest mobile platform today), NVIDIA can actually develop processors in this space (either based on off-the-shelf ARM cores or a custom, binary-compatible core) without incurring too much of a legal headache.
NVIDIA's GPU technology is key differentiator
In addition, since integrated graphics is a key differentiator for this space, NVIDIA can really leverage its years of expertise in building powerful, yet power-efficient, graphics processors for notebooks, desktops, and workstations. In fact, at SIGGRAPH (a premier graphics technology conference), NVIDIA demonstrated its next-generation "Logan" system-on-chip, which utilizes graphics technology borrowed and adapted from its higher-end desktop chips.
The power efficiency of this chip, although it's still early, looks absolutely stunning on the graphics side of things. In fact, while Qualcomm (NASDAQ:QCOM) and Apple have been leading the charge in mobile graphics performance, NVIDIA seems bent on taking the unequivocal crown here. If it can do so in a reasonable power envelope, then it will give the company a real edge as it competes for design wins in a highly competitive (but very large) tablet market.
Icera helps NVIDIA push into smartphones
While the tablet opportunity is compelling, the smartphone is even larger. Interestingly, the space has been largely dominated by Qualcomm at the high end (thanks to its leadership in developing LTE baseband and RF solutions) and by numerous Asian players such as Spreadtrum, MediaTek, and Allwinner at the low end.
To get into the smartphone game in earnest, NVIDIA acquired Icera in May 2011 . This bought NVIDIA a solid modem and RF team with which to compete against Qualcomm, Intel (via its Infineon Wireless acquisition), and Broadcom. As a result of this acquisition, NVIDIA was able to develop its Tegra 4i, which is a quad-core ARM Cortex A9 coupled with an integrated LTE baseband that should see volume deployments beginning in early 2014. This dramatically increases NVIDIA's total addressable market and should help drive substantial upside to the company's mobile computing revenue and profits going forward, if it can gain reasonable market share.
Plenty of growth ahead
NVIDIA's core GPU business continues to show strength, which has been a venerable cash cow for the company. As far as growth is concerned, however, I'm more focused on Tegra. While the Tegra 4 didn't quite live up to expectations (primarily because it was delivered late in order to pull in Tegra 4i and "Logan"), it has still managed to win a number of interesting designs such as the Xiaomi Mi3 "phablet," the ASUS Transformer Pad, the Microsoft Surface 2, and a few tablets from Toshiba and HP. I expect the next generation of tablets to be even better with "Logan," and the smartphone opportunity to open up the revenue floodgates. I'm excited for the growth ahead and believe there's plenty of room for the company's stock to run over the next several years.
Ashraf Eassa owns shares of Intel and NVIDIA. The Motley Fool recommends Google, Intel, and NVIDIA. The Motley Fool owns shares of Google, Intel, and Qualcomm. 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.