Please ensure Javascript is enabled for purposes of website accessibility

What Intel Corp.'s Results Tell Us About NVIDIA Corporation's Business

By Ashraf Eassa - Jan 19, 2016 at 3:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Although a lighter-than-hoped guide from Intel hurt many PC-related stocks, this one might have been unjustly beaten down.

After PC chip giant Intel (INTC 1.46%) reported solid fourth-quarter results, but guided to an underwhelming start to 2016, Intel and many of its PC-exposed peers saw their share prices drop significantly.

Among those stocks "wounded" was graphics specialist NVIDIA (NVDA 4.28%). However, I believe the Street may have been too hasty in throwing out this particular baby with the bath water, as Intel's results actually contained some fairly good news for NVIDIA.

Remember, NVIDIA is only exposed to part of the PC market
The majority of Intel's revenues come from the sale of PC platforms. The chipmaker's products span the entire gamut of PCs, from very low-cost "netbook"-like systems all the way up through extremely high-performance gaming PCs.

The majority of NVIDIA's graphics-related revenue, on the other hand, comes from selling products to PC gamers. Unlike the mainstream PC market, which is still fairly weak as device upgrade cycles are longer, and many "typical" computing tasks have moved to devices like smartphones and tablets, the gaming PC market is doing extremely well.

In fact, on Intel's earnings call, management claimed that both its Core i7 processors as well as its unlocked, PC gaming enthusiast-oriented "K" series parts (which includes both Core i5 and Core i7) "set all-time volume records."

It is the strength of this segment that gives me confidence that a large portion of NVIDIA's graphics business should remain quite healthy, even if the overall PC market slows down.

How can we draw that conclusion?
In order to understand why the Intel results are good for NVIDIA, it's important to have some understanding of the buying habits of the kinds of folks who will buy Intel's gaming-oriented CPUs.

In a typical gaming PC, I have found that the graphics cards usually need to be replaced at a more rapid rate than the CPU and motherboard do. This is because advancements in enthusiast PC processor performance tend not to be huge generation-over-generation, and the CPU requirements of most games aren't going up at that rapid of a clip.

In contrast, graphics processors tend to get significantly faster with each passing generation, and games tend to see dramatic increases in the kind of graphical horsepower needed to run. Additionally, PC display resolutions continue to increase, as do maximum refresh rates (the rate at which the screen can update) and to support both of those, significant additional graphics horsepower is needed.

All in all, if Intel's high-end, gaming-oriented CPU business is healthy, the bulk of NVIDIA's gaming business should be in good shape.

NVIDIA isn't completely immune, however
Although I would say NVIDIA is more insulated from a broad PC slowdown than Intel is given NVIDIA's narrower focus, the company isn't completely immune to a potential slowdown in the PC/workstation market.

NVIDIA still has exposure to the non-gaming segment of the PC market via its OEM and IP business, and the performance of the company's Quadro workstation/professional graphics still seems largely tied to the performance of the workstation market (and with NVIDIA reporting that Quadro sales were down 8% year over year last quarter, that market doesn't look great).

With that in mind, I would say even though NVIDIA isn't totally shielded from any broad PC/workstation weakness, the gaming-oriented nature of the bulk of its revenue probably means it's better off than most of its peers.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel and 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$36.11 (1.46%) $0.52
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$187.09 (4.28%) $7.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.