NVIDIA (NVDA) has introduced new GeForce GTX 980 and 970 graphics processing units (GPU) based on its Maxwell chip architecture. NVIDIA’s high end GPUs remain the back bone of visual computing technology as it provides enhanced graphics capabilities that enthrall gamers.
NVIDIA’s new GPUs offer Voxel Global Illumination (VXGI), multi-frame sampled antialiasing (MFAA), dynamic super resolution (DSR), VR Direct that address several lighting and graphics challenges. Also, these GPUs are touted to be more energy efficient than earlier versions.
Although gaming is the key to NVIDIA’s growth, computing is becoming increasingly more visual, given the strong growth in tablets. Also, software increasingly relies on a visual user interface rather than text. For example, Windows 8 requires much more GPU resources than its predecessor as it leverages improved graphics capabilities to improve user experience. These trends are positive for a maker of graphics processors such as NVIDIA.
It is worth noting that in the last-reported quarter (second-quarter 2015) NVIDIA reported a 10% year-over-year increase in revenues from GeForce GTX GPUs for desktop and notebooks aided by higher sales of Maxwell-based GeForce GTX 750 and GTX 750 Ti Series GPUs.
We believe that the latest product launches will further strengthen the company’s strong position in the market for high-end discrete graphics. According to a research report by Jon Peddie Research, NVIDIA maintained its third position in the GPU market with a market share of 14.7% in the second quarter of 2014, following Intel (INTC) with 67.3% share and Advanced Micro Devices, Inc. (AMD) with 17.9%.
NVIDIA’s Tegra processors are also doing rather well and should remain the growth drivers. NVIDIA’s Tegra chips are being increasingly used in Google Inc's Nexus 7 and Microsoft Corp’s (MSFT) Surface tablets. NVIDIA’s success with its Tegra processor continues as Tegra K1 processors are being used by Acer for its Chromebook 13 and Hewlett-Packard for its Chromebook 14. Thus, the higher adoption of Tegra K1 will boost NVIDIA’s business and will give it a competitive advantage against the likes of AMD and Intel.
However, the continuous decline in PC sales is a cause for concern for NVIDIA’s GPU segment. Competition from the likes of Intel and QUALCOMM Inc. and higher operating expenses are also expected to hurt profitability in the near term.
Currently, NVIDIA has a Zacks Rank #2 (Buy).
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