Can Nvidia Sustain Its Bullish Run?

Aug.20.14 | About: Nvidia Corporation (NVDA)

Summary

Nvidia beat the anlaysts estimate yet again.

Nvidia has performed nicely this year and the company's long-term prospects are strong.

The launch of the "Shield" tablet should prove to be beneficial in the long-run.

Nvidia's Tegra K1 will help it gain traction in the in-car infotainment and tablet market.

Nvidia is a good buy at present valuations.

Nvidia (NASDAQ:NVDA) has stepped on the gas this year. The stock has gained almost 10% since I last recommended it in June and I expect it to continue to grow. The chipmaker recently released its earnings report, beating revenue as well as earnings estimates. Let's take a quick look at Nvidia's quarterly results.

Another brilliant quarter

Nvidia average earnings per share came in at $0.22 per share as compared to $0.16 per share in the same quarter last year, beating the analysts' estimate of $0.20 per share. The revenue for the quarter was $1.103 billion, more than the previous year quarter's $977.24 million, affirming a 12.6% year-over-year growth.

Nvidia's GeForce processor, used gaming desktops and notebooks, recorded 10% y-o-y growth due to the continued strength in PC gaming. In my last article, I praised Nvidia's decision to focus more on in-car infotainment and PC gaming market and it is clear from the quarterly performance that it was indeed a good decision.

What will drive the outlook

Nvidia recently announced that it will launch its Shield tablet very soon. The Shield tablet is a high-powered Android device that is compatible for gaming. It features the powerful Nvidia Tegra K1 processor, an 8-inch full HD display, front-facing speakers, support for micro SD cards up to 128GB, and optional LTE connectivity. The tablet is available for preorder at $299 for the 16GB version and $399 for the 32GB version.

With the existing iPad and iPad mini from Apple (NASDAQ:AAPL) possessing more than three-fourths of the market, it will be a little difficult for Shield to make a break. Also, Nvidia's previous launch of the Shield handheld couldn't create much magic, but the recent "$100" price cut has definitely affected demand for the product. Although the Shield tablet could not generate much hype among gamers, the Tegra K1 processor has proved its potential and worth, which would entice tablet makers to use its mobile processor.

Automotive prospects

Nvidia's automotive business is growing steady as it has entered the growing market for self-driving cars. The Tegra K1 processor will help self-driving cars become mainstream by use of its supercomputing technology. Tegra K1's GPU powers ten of the fastest and energy-efficient supercomputers in the world. This processor possesses a quad-core CPU and a 192-core GPU, enabling camera-powered advanced driver assistance systems. Moreover, the Tegra K1 also will help Nvidia gain traction from the in-car infotainment market, which is slated to double in the next five years. I said in my previous article:

"Nvidia claims that there are over 5 million vehicles on the road which use the company's processors, nearly 100% more than in 2012, and the automobile market has become the fastest-growing segment in the chipmaker's Tegra division. Thus, it's highly likely that the company will benefit from the powerful Tegra K1."

Some features of this chip include pedestrian detection, blind-spot monitoring, lane-departure warning, street sign recognition, and driver alertness. Nvidia has already got some giant automotive companies like Audi, Porsche, BMW, Mini, Peugeot and Tesla (NASDAQ:TSLA) as customers. As mentioned above, the company currently has more than 5 million cars running on the road with its chips installed, and plans to touch the 25 million mark in the coming years. It is also highly likely for Google to opt for Nvidia's Tegra for its own self-driving vehicles.

Final words

Nvidia is gaining traction in end-markets such as mobile and cloud computing. The rising demand for personal computers is likely to benefit the company as well. Also, the company announced that it will return $1 billion to shareholders in the form of stock buybacks and dividend payments this year. This sum of money is inclusive of repurchased stocks worth $100 million.

Nvidia currently stands in the second position among all S&P 500 tech stocks, yielding an annual dividend of more than 1.8% and is generating strong cash flows. Also, with a low payout ratio of 37%, the company can be expected to increase the dividend in the near future. All of the above suggests that Nvidia looks like a strong long-term investment and investors should consider this stock.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.