With innovation comes a new opportunity and the same has been witnessed in the case of NVIDIA Corp. (NVDA). Recently, NVDIA has been selected by the “Indian Space Research Organization” (ISRO). SAGA system, India's most powerful supercomputer, which holds the 86th position on the Top 500 list, will be supported by the NVIDIA GPU to enhance the capabilities of satellite launch vehicles.
This supercomputer leverages the power of 640 NVIDIA Tesla GPUs, which provides up to 394 teraflops of peak performance. Moreover, this newly developed supercomputer enables ISRO to accelerate and improve the design and analysis of new and existing satellite launch vehicles, which enable more complex and accurate design simulations.
We believe that this may open up new possibilities for NVIDIA across the globe. This new technology deployed by ISRO helps reduce the time to create, simulate and verify a new launch vehicle, which is now restricted to days compared to weeks earlier. Moreover, this has resulted in an improvement in the overall quality while enhancing the durability at the same time.
Although the company’s entry into space research is a prudent move, almost 80% of its revenue is derived from the PC market. From that, almost 50% of the revenue comes from the high-end PC and gaming segments. This is an area where the company’s business is dependent on consumer spending and economic growth. Although space research diversifies the company’s core business considerably, we believe that this does not cover up for the macroeconomic risks associated with its core business.
The competition faced by the company has increased substantially, as NVIDIA competes againstsome well known semiconductor companies like Intel (INTC), Advanced Micro Devices (AMD), Texas Instruments (TI) and Marvell (MRVL). More aggressive and price sensitive moves by these companies may result in price wars and shifts in customer loyalty. Moreover, the company faces new competition as it enters new businesses.
As expected, NVIDIA delivered mixed first quarter results with EPS surpassing our expectations, but revenue declining both sequentially and year over year. The company refreshed its notebook GPUs with the launch of the GeForce 600M series. NVIDIA expects to benefit from the integration of the new Tegra 3, and a strong growth in the notebook segment.
Moreover, NVIDIA’s performance may be tempered slightly by the economic slowdown in Europe. Again, advanced chips developed by Intel Corp. (INTC) and Advanced Micro Devices Inc. (AMD) may bring on more competition for the company.
Currently, NVIDIA holds a Zacks #3 Rank, implying a short-term Hold rating.
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