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NVIDIA Well Poised on Growth Initiatives; Should You Hold?

On Jun 13, 2016, we issued an updated research report on NVIDIA Corp.NVDA .

NVIDIA offers digital media processors and related software for a wide range of visual computing platforms. On May 12, 2016, the company declared better-than-expected first-quarter 2017 results.

The company posted earnings (including stock-based compensation but excluding other one-time items) of 39 cents per share for the quarter, up on a year-over-year basis. The Zacks Consensus Estimate was pegged at 31 cents.

Revenues not only increased 13.4% year over year to $1.305 billion but also surpassed the Zacks Consensus Estimate of $1.267 billion. The year-over-year increase was primarily due to better-than-expected growth in GPUs gaming platform, high-performance computing, datacenter and Tegra automotive platforms.

Going forward, NVIDIA's shield gaming device is another growth avenue. In fiscal year 2016, the company unveiled NVIDIA SHIELD Android TV device and GeForce NOW, which allows players to stream video games from the cloud to their SHIELD devices. NVIDIA also launched the latest SHIELD tablet, powered by its 192-core Tegra K1 mobile processor.

The company is also in the process of gaining market share among gaming service providers, thereby strengthening its position in the workstation-based gaming services in supercomputing segments. The advanced gaming cards also add value to PC manufacturers. The strong lineup of advanced graphics cards such as its GeForce GTX 780 and 770 graphics cards released in May, and the latest 'GeForce GTX 780 Ti', 'Maxwell', the GeForce GT 730, GeForce GT 740 and the new GeForce GTX 750, GeForce GTX 800M, GeForce GTX 980 and 970 have made it a favorite graphics card provider among PC makers. We believe that strong demand for PC gaming will be a tailwind for the company's financial performance.

Although gaming is the key to NVIDIA's growth, computing is becoming increasingly visual, given the new-age tablets that are seeing tremendous demand. Software increasingly relies on a visual user interface rather than text. According to NVIDIA, its High Performance Computing (HPC) and data centers are expected to witness tremendous growth over the long run. This trend is positive for a company like NVIDIA, which is witnessing increased demand for its graphics chips.

The company has launched some new products and has several others in the pipeline. These include 256-core Tegra X1 mobile processor and 192-core Tegra K1 mobile processor powered by Kepler technology. Also, NVIDIA launched Jetson TK1, a platform meant for automotive, robotics and embedded applications. Furthermore, NVIDIA's Tegra chips are increasingly being used in Alphabet Inc.'s GOOGL Nexus 7 and Microsoft Corp's MSFT Surface tablets. During its 2016 GPU Technology Conference, the company introduced Tesla P100, the most advanced accelerator. Apart from Tesla P100 GPU, the company also introduced its supercomputer - DGX-1 - tailor-made for deep learning. These product launches will act as a catalyst for the company.

Furthermore, NVIDIA's focus on GRID platforms can increase 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. NVIDIA and VMware had entered into 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 also believe that NVIDIA's GRID enterprise virtual graphics, which improve the visual effects of games, will help in future revenue and margin growth.

Nonetheless, competition from the likes of Intel INTC and QUALCOMM Inc. remains a near-term headwind.

NVIDIA has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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