Nvidia Positioned to Lead Mobile Solutions

It’s no secret that the GPU space has been heating up. The Apple (AAPL)/Nvidia (NVDA) deal got the ball rolling and now Intel (INTC), Nvidia and AMD/ATI are in a fight to lock up design wins in the next generation (or two) of devices.

A few things are driving this including:

1. More graphics processing needed in mobile Internet devices. Video and graphics are more important than crunching spreadsheets.
2. Interfaces are becoming more complex. It’s been on the roadmap for 20 years or so but more game-like UI features will dominate the client going forward. Much as basic windowing systems took over back in the late 1980’s and 1990’s.
3. Software libraries have made it easier to take advantage of the GPU for some more general purpose processing. This is both a top-down and bottom-up movement. The GPGPU idea is here to stay.

That Intel may be in the PS4 (if there is such a thing) could happen. The new Intel chip is positioned at the high end but most of the units, and possibly profits, will be in the low to mid-range where Nvidia (with Tesla and Tegra) appears to be in a good position.

Nvidia as a company and NVDA stock are in the midst of a huge transition from high-end, expensive add-in cards to chipsets and mobile solutions. We expect Nvidia to emerge as a leader in this category. It won’t come without any bumps although guidance already reflects a fairly steep falloff in their traditional business.

Our fairly conservative estimate for fair or "intrinsic value" comes to $15 which makes the stock attractive at these levels.

Disclosure: Research 2.0 has a long position in NVDA and ARM at the time of this writing.