Nvidia: Time To Buy The Pullback

May.23.13 | About: NVIDIA Corporation (NVDA)

My readers know that I am an Nvidia (NASDAQ:NVDA) uber bull. Quite frankly, while I understand that many believe that "oh no, the discrete GPU is dead" or "oh my gosh, consoles will kill PC gaming," I don't subscribe to those arguments at all, and I don't think that investors really ought to either. The company has grown modestly over the last couple of years despite the numerous headwinds, and I believe that we are now on the cusp of a very real breakout in the underlying fundamentals of the company which, of course, will trigger a breakout in the share price.

However, the thesis that I'm looking to play out isn't really going to be obvious until the back-half of the year, but as that back-half approaches, the time to "buy in" gets shorter. The market decided that it was time for a breather and as a result a lot of quality names got hit, Nvidia among them.

Just a couple of reasons to pick up Nvidia on this pullback to $14.40:

  • The company just initiated a massive buyback program to the tune of $750, handled by none other than Goldman Sachs (NYSE:GS) and it is likely that any major "dips" in the share price will be bought into through this accelerated buyback program.
  • The firm's long-term commitment to being a legitimate dividend-growth name going forward should not only provide a rising floor on the stock, but should give "yearly raises" to shareholders for many years to come.
  • The firm's balance sheet is clean as a whistle with ~$3.7B in net cash on the books. I expect this to decline at the end of the year due to the major buyback, but the company will still have a healthy amount of cash left over should it need to do another acquisition or something else cash-intensive.
  • Tegra 4i should be getting some serious design win momentum as phone vendors look for alternatives to Qualcomm's (NASDAQ:QCOM) integrated LTE modem + apps processor parts.
  • Tegra 4 design wins should begin rolling out in force, especially following the nice win over at Hewlett Packard (NYSE:HPQ) with its 10" Android convertible.
  • Nvidia's "GRID" initiative seems to be catching on with large partners such as Cisco (CSO) hopping on board.
  • The launch of the GTX 770/780 is imminent, and quite frankly will bring back price points on graphics cards (>$600 but under $1000) that haven't been seen since the company's glory days back in 2006-2007. There is no credible competition from AMD (NYSE:AMD) in this space, and as a result the market for ultra high end, high margin graphics cards goes entirely to Nvidia for the foreseeable future.

All in all, this is a great company with a bright future ahead of it, and I believe that at these prices the shares remain substantially undervalued relative to what the second half of 2013 and what 2014 will bring.

Disclosure: I am long NVDA, QCOM, AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.