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Taking a contrarian stance is hard. While everybody else is busy gloating about the 10%, 20%, or even 100% gains from whatever momentum stock they happen to be long, you're stuck sitting in the corner with a stock that you're convinced is worth much more than what it's trading at today. The days, weeks, and months go by, you're adding on major drops, maybe fading on a decently outsized move, but in general you're making peanuts. It's a very lonely road.

But sometimes, especially when it looks the darkest and the rumor mill is busy spreading "bad" news, the big boys validate your stance by taking large positions. Today, Vanguard filed a schedule 13G, stating that it now owns 6.08% of the total outstanding shares of Nvidia (NASDAQ:NVDA), a company that I have been pounding the table on for months now.

This does a couple of things for existing shareholders:

  • Confirms that they're not crazy for wanting to buy this stock
  • Confirms that the largest shareholder is not unhappy with the current direction and the management team (a 13D is what institutions/people that want to effect change usually file)

Indeed, the stock is outperforming the broad market in the 2/11 session following the 13G filing, with the stock up 1.5% while the NASDAQ (NASDAQ:QQQ) is down 0.12%.

More Positives To Come

This isn't the end. Nvidia's earnings report is coming on 2/13, and the company is likely to do well. In gaming GPUs, Nvidia is cleaning rival AMD's (NYSE:AMD) clock on the market share front, which has led AMD to do desperate things like bundle $120 worth of games with its $379.99 graphics cards. The upcoming release of the very high end "GeForce Titan", which AMD will likely not have a response to, will further insure Nvidia's dominant market share position, higher gross margins, and higher ASPs.

In mobile processors, Nvidia has stated in no uncertain terms that it has nailed more design wins with its Tegra 4 than it did with its previous generation Tegra 3. The Tegra 3 led to 50% Y/Y growth in the booming tablet chip market (and the highest market share in the Android device space), so it is only natural to expect even more good things from Tegra 4.

Finally, even AMD reported "record workstation revenue" for its graphics division in Q4, so given Nvidia's stronger market position in the professional graphics space (complete with a total refresh of its products here) and further given the slump that the whole sector has been in, the bottom for this segment may be in. The professional graphics business runs at ~46% operating margins, so any uptick in sales could lead to unexpected upside to 2013's EPS estimates.

Conclusion

Nvidia is a deep value play with nearly 50% of its market cap in cash, no debt, strong profitability, and a dominant market position in its core businesses. I am optimistic for 2013, and can't wait to see what the future holds for this company.

Source: Nvidia: Vanguard Now Owns 6%