Why It Might Be Time to Go Long Nvidia Corp.

If you’ve owned Nvidia Corporation (NVDA) over the last 18 months, you’re probably not a happy shareholder (it’s fallen from $37.39 to as low as $5.75). However, this visual computing technology provider currently screens well in my factor model, and it looks even more attractive after a detailed review.

As far as the factor model is concerned, Nvidia looks good. It has very low debt, large amounts of cash, the stock price is well below its 30 day moving average, and it’s a steal when compared to peers on forward growth valuation metrics.

A more qualitative review of Nvidia reveals its growing market share in a growing market. According to Mercury Research, the integrated and discrete Desktop GPU markets grew q/q, and Nvidia gained share in the discrete market reaching its highest level ever (69%). Notebook GPUs also showed resiliency in our current tough markets with integrated Notebook GPUs actually showing growth y/y. What’s further, Nvidia appears to be well positioned for strong long term growth in Tegra (Tegra provides multi-media capabilities to meet the next generation of smart phones).

Overall, Nvidia has a strong balance sheet, great revenue growth prospects, and it’s cheap. The stock saw strong positive movement on Monday (up 6.06% versus up 3.11% for the Nasdaq). I hate to go long a stock after a big up day, but based on the 30 day moving average, Nvidia still has plenty of room to run. I’ll be watching how Nvidia moves in relation to the overall market on Tuesday for a potential buying opportunity. Further, based on several other interesting market factors I’m watching, Investorwalk Subscribers will be the first to know if I use an option strategy to get long Nvidia.

As a final parting point, if you believe the market cycle has already bottomed as part of our current recession then technology stocks (e.g. Nvidia) are historically one of the strongest performing sectors in this stage of the cycle.

Click to enlarge:

Comments

[HATEFEEBAY:]

What you forgot to say is that IT DOESN'T MAKE MONEY! At least it is consistent there, the company has too much fat and LOSES $.

May 19 08:55 AM

[amdman:]

Both AMD and Intel are moving graphics onto the CPU, that leaves just the tiny and shrinking add in graphics board market to sell into. (Less than 10% of the PC market.)
The most likely outcome is NVidea getting sold to Intel at fire sale prices (~$3/share) for its patent portfolio when the company craters in two years.

May 19 01:55 PM

[Lightway:]

In addition to GPUs, Nvidia also makes motherboards, as well as any integrated components that go with them, like NIC ports, for example. There is also a growing use of GPUs for non-graphic computing, in which the GPU often beats out the main board processor in terms of performance. Look for this software space to continue to grow, as applications are written to take advantage of the tremendous non-graphical processing power of the GPU.

May 20 12:25 PM

[ts2:]

AMD and NVDA are in a brutal price war on GPUs. The winners are the consumers, the losers are the 2 companies. I would stay away from NVDA until the war is over and they have superior chips.

May 20 02:10 PM

[Nettligent:]

The worst has yet to come. NVIDIA is speculative stock, high risk, and overvalue. Demand and outlook is not good. Revenue and Profits will be low until 2010. Customers are no longer paying few hundred dollars for video cards. Computer makers, Dell, HP, Asus, Gateway, are struggling.
Both Intel and AMD have their own solutions and getting cheaper.

May 20 04:46 PM