At current valuations Nvidia (NVDA) trades at a considerable discount to its peers.
So clearly investors have their doubt about Nvidia's growth prospects. This is because Nvidia's core business of Graphics Processing Units (GPUs) lies in the PC space. Separate GPUs like the ones Nvidia makes are no longer used in most basic day-to-day computers. Entry level computers now use integrated graphics performed by the CPU.
Critics of Nvidia cite the declining PC market and the advancement the integrated graphics solutions as the major threat to its core business of GPUs. The logic is that as integrated graphics improve fewer and fewer people will need the enhanced performance of a separate GPU for their computing needs. If they were right investors should be worried about the brand new Haswell processors released Sunday by Intel (INTC), the leading CPU company. In early reviews Haswell integrated graphics have shown a significant performance boost (sometimes by as much as 50%) over their Ivy Bridge predecessors.
However from the same review (and many other sources around the web) we see that Haswell integrated graphics are no match for a discrete graphics card. Specifically this review cites a low level AMD (AMD) HD7750 costing only ~$100 as being more than 250% faster in gaming applications.
So what does this mean for Nvidia? The introduction of Haswell will not impinge on profits from GPU sales in any meaningful way. The only GPUs Haswell can compete with are the absolute lowest end cards that also have the lowest margins. Gamers and custom PC builders who are interested in Nvidia's mid to high end GPUs certainly will not be lured away by these updated integrated graphics.
I believe Haswell will actually have a positive complimentary effect on Nvidia's GPU sales. Nvidia recently rolled out its new high end GTX 780 and GTX 770 GPUs, and there will certainly be more mid-level GTX 7xx cards released over the next few months. As a tock in Intel's tick tock processor release plan, Haswell will inspire many system builders and gamers to upgrade and build entirely new systems around it. Anyone building a new PC with the newest and fastest Intel processors will want to pair it with the newest and fastest GPU available. Right now that GPU is the Nvidia GTX 7xx series of graphics cards.
So instead of a decline in Nvidia's core GPU business as many expect as the PC market continues its march down, look for a boost from Nvidia's new high end, high margin GPUs being paired with Intel's new processors. I believe Nvidia is a great buy at these valuations for a long-term investor. I expect an upside surprise with the company's next earnings release in August.