On Jul 9, 2014, Zacks Investment Research upgraded NVIDIA Corp (NVDA) to a Zacks Rank #1 (Strong Buy). A strong return of 32.43% over the past one year and a long-term expected earnings growth rate of 11.10%, higher adoption rate of the company’s Tegra processors and a positive estimate revision trend make NVIDIA an attractive investment option.
Why the Upgrade?
NVIDIA has posted an average positive surprise of 38.19% over the last four quarters. Moreover, positive estimate revisions increased the Zacks Consensus Estimate for fiscal 2015 from 91 cents to 92 cents over the last 30 days.
Moreover, a similar positive estimate revision of the same magnitude was witnessed for fiscal 2016. The Zacks Consensus Estimate for fiscal 2016 increased by a penny to $1.02 over the last 30 days.
Some of the optimism related to NVIDIA shares can be attributed to the higher adoption of its Tegra processors. Recently, Google (GOOGL) selected NVIDIA’s Tegra K1 processor to power its Project Tango tablet development kit, which will help developers build applications featuring 3D mapping and sensing capabilities.
Moreover, Xiaomi, a Chinese mobile manufacturer, launched its tablet powered by Tegra K1 processors. Additionally, NVIDIA’s Tegra 4i chips are expected to compete with QUALCOMM (QCOM). Tegra 4i is the company’s 4G LTE mobile processor.
We believe NVIDIA’s innovative product pipeline that consists of the recently introduced SHIELD 2 and mobile processor Tegra K1 will boost top-line growth. Moreover, strength in gaming and high-end notebook GPUs is the other catalyst, going forward.
In addition, NVIDIA entered into a strategic alliance with International Business Machines (IBM) to produce GPU-accelerated editions of the latter’s enterprise software running on its Power technology.
However, the continuous decline in PC sales is a cause of concern for NVIDIA’s GPU segment. Competition from the likes of Intel and QUALCOMM and higher operating expenses remain the headwinds.
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