NASDAQ: NVDA
COMPANY DESCRIPTION
Founded
in –1993 | Current Market Cap – 88.45 Billion USD
NVIDIA
Corporation operates as a visual computing company worldwide. It operates
through two segments, GPU and Tegra Processor. The GPU segment offers processors,
which include GeForce for PC gaming and mainstream PCs. GeForce NOW for
cloud-based game-streaming service. Quadro for design professionals working in
computer-aided design, video editing, special effects, and other creative
applications; Tesla for AI utilizing deep learning, accelerated computing, and general-purpose
computing; GRID provides power of NVIDIA graphics through the cloud and
datacenters. DGX for AI scientists, researchers, and developers and
cryptocurrency-specific graphics processing units. The Tegra Processor segment
provides processors designed to enable branded platforms - DRIVE and SHIELD. DRIVE
automotive computers and software stacks, which offer self-driving capabilities.
SHIELD devices and services designed for mobile-cloud in home entertainment. NVIDIA
is headquartered in Santa Clara, California.
RECOMMENDATION
We rate NVIDIA Corporation a Buy at USD
145 for a target of USD 193 in three month.
Below are the basic reasons to
recommend this stock as a Buy.
·
NVIDIA is gaining market share among gaming
service providers, which is strengthening its position in workstation-based
gaming services in supercomputing segments. The strong lineup of advanced
graphics cards has made it a favorite graphics card provider among PC makers.
The company has always generated substantial revenues from its cards because of
the significantly higher functionality. Recently, NVIDIA began shipping its first gaming GPUs —
GeForce RTX series — based on Turing architecture. Management believes that RTX
is well-poised to establish itself “as a game-changing architecture”, given the
pipeline of upcoming games supporting the ray-tracing feature.
·
Although gaming is the key to NVIDIA’s growth,
computing is becoming increasingly more visual, given the new-age tablets that
are seeing tremendous demand. According to NVIDIA, its High-Performance
Computing (HPC) and data centers are expected to witness tremendous growth over
the long run period. The company has last year introduced a new HPC technology,
Tesla P100 GPU Accelerator, which NVIDIA claims will provide higher efficiency
and performance to enterprises while incurring 70% lower capital and operational
costs. It has also introduced Tesla M10 GPU which allows enterprises to connect
to 64 users per board or up to 128 users per server with just two boards. This
will help organizations in lowering their per user cost. Continuous product
launches in the computing segment is positive for a company like NVIDIA, which
is witnessing increased demand for its graphics chips.
·
NVIDIA benefits from the continuous launch of
new products. In Consumer Electronics Show (CES) 2018, NVIDIA introduced a
hardware “big format gaming displays, or BFGDs” in collaboration with HP Inc.,
Asus and Acer, to heighten gaming experience on a big screen — 65 inches.
NVIDIA unveiled its Turing architecture, which includes real-time ray tracing
technology, RT Cores as well as Tensor Cores for AI inferencing. We believe the
product launch will help NVIDIA expand its customer base and in turn drive
additional revenues. Moreover, continuous ramp up of new products is helping it
gain competitive advantage against the likes of AMD and Intel and expand market
share. The recent launch of open-source GPU-acceleration platform, RAPIDS,
which is designed to enable companies to analyze a huge amount of data at
unparalleled speed and make business decisions efficiently, is expected to be a
key driver.
·
NVIDIA is gaining from strategic partnerships.
The company is engaged with several organizations, which include leading cloud
server companies like Amazon, Baidu, and Facebook, who are infusing AI in
various applications. The company has also partnered with industry leaders such
as IBM, Microsoft and SAP in order to bring AI to enterprise users. Moreover,
NVIDIA, to fortify its foothold further in the AI space, has recently partnered
with Arrow for an AI computing platform, Jetson Xavier, to deliver advanced AI
computing. Moreover, recently Oracle chose to support NVIDIA HGX-2 platform on
its Cloud Infrastructure to address growing demand for AI and machine learning
across various industries. The company is also getting into collaborations in
healthcare and manufacturing, among others, to accelerate the adoption of AI.
·
NVIDIA’s foray into the autonomous vehicles and
other automotive electronics space has been driving its stock higher since
mid-2015. In 2016, NVIDIA launched DRIVE PX 2 – the world’s most powerful
engine for in-vehicle AI and later in the year unveiled an AI supercomputer
chip designed for self-driving cars called Xavier. In 2017, it launched another
chip called Pegasus that helps to drive fully autonomous robotaxis. Notably,
the company is working with more than 320 automakers, tier-one suppliers,
automotive research institutions, HD mapping companies and startups to develop
and deploy AI systems for self-driving vehicles. Recently, it partnered with
German car maker Daimler and Bosch for a self-driving car that will begin
testing within a year. With sustained focus on developing new and more advanced
AI technologies for self-driving cars, we believe that the company is well
poised to grow in the driverless vehicle technology space.
·
NVIDIA’s focus on GRID platforms is increasing
GPU adoption in data centers, giving it an advantage against its competitors.
NVIDIA GRID is a powerful GPU-based platform that supports corporate
virtualized desktops in data centers, cloud gaming services and design
software-as-a-service. GRID provides a visually rewarding graphics experience
that a company may otherwise derive from an expensive, dedicated PC. NVIDIA and
VMware had entered a strategic alliance to run NVIDIA GRID technology on VMware
Horizon Desktop-as-a-Service (DaaS) Platform. This will help NVIDIA to enrich
its virtualization, automation and cloud-based portfolios. We believe that
NVIDIA’s revenues will stand to benefit significantly if the latest GameWorks
technologies succeed in meeting user requirements. We believe that NVIDIA’s
GRID enterprise virtual graphics, which improve the visual effects of games,
will help in future revenue and margin growth.
EARNINGS
NVIDIA third-quarter fiscal 2019
results recorded a year-over-year improvement but fell short of the Consensus
Estimate.
The company’s non-GAAP earnings per
share came in at $1.84, surging 38% from the year-ago period while declining 5%
sequentially. Also, the bottom-line figure missed the Consensus Estimate of
$1.91.
Revenues improved 21% year over
year to $3.18 billion. However, the top line lagged the Consensus Estimate of
$3.24 billion. Moreover, it was lower than the management’s projection of $3.25
billion (+/-2%). Although growth across Data center, Professional Visualization
and Automotive segments was positive, weakness in the Gaming segment was a
spoiler.
Moreover, due to excess inventory
of mid-range Pascal products caused by low demand from cryptocurrency induced
the management to issue a soft guidance for the fiscal fourth quarter.
BALANCE SHEET
NVIDIA exited the fiscal third
quarter with cash, cash equivalents and marketable securities of $7.59 billion
compared with $7.94 billion in the previous quarter. NVIDIA’s long-term debt
remained at $1.99 billion.
Cash flow from operations was $487
million compared with $913 million in the prior quarter. Free cash flow during
the fiscal third quarter came in at $337 million, down from $785 million in the
fiscal second quarter.
During the first nine months of
fiscal 2019, the company returned approximately $1.13 billion in the form of
share repurchases ($855 million) and dividend payouts ($273 million) to
shareholders. NVIDIA extended its dividend and share buyback program and
announced its plans to return an additional $3 billion to shareholders by the
end of fiscal 2020.
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