NVIDIA Corp. NVDA is well set on the growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals. Also, shares of NVIDIA have been trending upward giving a positive one-year and year-to-date return.
An impressive track record of beating quarterly earnings expectations along with an encouraging third-quarter fiscal 2016 revenue outlook, solid cash flows and regular innovative product launches are driving NVIDIA’s share movement.
On Aug 6, NVIDIA reported better-than-expected second-quarter fiscal 2016 results, primarily backed by lower operating expenses as a percentage of revenues and higher growth in GTX gaming platform, data center, high-performance computing, cloud and automotive platforms.
Revenues not only increased 4.5% year over year to $1.15 billion during the quarter but also surpassed the Zacks Consensus Estimate of $1.02 billion. Revenues from GeForce GPUs for desktop and notebooks increased 9% year over year to $959 million, driven by robust demand in high-end Maxwell GPUs coupled with strength in high-performance computing and cloud, and automotive. Also, continued strength in PC gaming impacted the quarter’s revenues.
The company reported adjusted earnings (including stock-based compensation but excluding interest expense related to amortization, other acquisition-related costs and other one-time items) on a proportionate tax basis of 26 cents per share, surpassing the Zacks Consensus Estimate of 11 cents.
It is worth mentioning that 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 VMW had entered into a strategic alliance to run NVIDIA GRID technology on VMware Horizon Desktop-as-a-Service (DaaS) Platform. This helps NVIDIA to enrich its virtualization, automation and cloud-based portfolios. We believe that NVIDIA’s GRID enterprise virtual graphics, which improve the visual effects of games, will help in future revenue and margin growth.
Furthermore, the company’s shield gaming device is another growth avenue. Based on Android Jelly Bean, this handheld gaming device features a flip-up 5-inch touchscreen display, two analog joysticks, a control pad and buttons. The device has the potential to gain importance in a niche market. NVIDIA had launched the latest SHIELD tablet, powered by its 192-core Tegra K1 mobile processor. Introduced in July, the 8-inch Android tablet is equipped with high definition video streaming features for avid gamers. NVIDIA plans to include LTE in future versions that would be distributed at subsidized rates through the Verizon, AT&T T, T-Mobile and Sprint networks. We believe that NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs keep it well positioned. We also believe that higher adoption of NVIDIA’s Tegra processors could act as a catalyst, going forward.
Nonetheless, the continuous decline in PC sales is a cause of concern for NVIDIA’s GPU segment. Competition from the likes of Intel INTC and QUALCOMM Inc. also remains a near-term headwind.
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