Nvidia: Strong Quarterly Results Accompanied By An Even Stronger Outlook

| About: NVIDIA Corporation (NVDA)

Shares of Nvidia (NVDA) rose more than 4% in after-hours trading on Thursday after the company published its quarterly results. Shares of the chip manufacturer already gained 3.4% during the regular trading session.

Second Quarter Results

Nvidia reported second quarter revenues of $1.04 billion for its fiscal year of 2013. Revenues were up 12.9% compared to the first quarter. Gross margins on a GAAP basis came in at 51.8%, up 170 basis points compared to the first quarter. GAAP net income rose to $119.0 million, or $0.19 per share. Net income was up 97% compared to first quarter earnings. Non-GAAP earning per share of $0.27 beat analysts consensus by five cents.

Last year the company reported net income of $152 million for the second quarter, on revenues of $1.02 billion. This year's second quarter revenues of $1.04 billion came in at the high end of the company's outlook of $990 million - $1.05 billion.

The company's Tegra processors can be found in Google's Nexus 7 tablet and Microsoft's Window's RT tablet. The company's Kepler unit drove market share expansion in the Notebook market where Nvidia supplies to Apple, Samsung, Dell, HP, Acer, ASUS, Lenovo and Sony.

CEO Jen-Hsun Huang commented on the results:

"Our investments in mobile computing and visual computing are both paying off. Tegra has achieved record sales as tablets come into heir own. Our GPU business made strong gains in a weak markets, boosted by our breakthrough Kepler architecture. Looking ahead, we're optimistic, as our investment positions us right at the center of the fastest growing segments of computing."

Segmental Information

The consumer GPU unit reported $668.3 million in revenues, up 15.3% on the quarter. Notebook GPU revenues hit a new record on the back of the "Ivy Bridge" design. Revenues for the professional solutions business fell 7.7% to $196.3 million. Weak circumstances in Europe and a delayed ramp of Romley workstations are to blame. Consumer product business, including the Tegra smartphone and tablet products, reported a 35.5% increase in revenues to $179.7 million.


For the third quarter, Nvidia anticipated revenues of $1.15-$1.25 billion. The company anticipates GAAP gross margins of 51.8%. GAAP operating expenses are estimated at $390 million, which compares to $401.1 million in the second quarter. Depreciation and amortization expenses are estimated at $57-$59 million. Capital expenditures are estimated at $30-$40 million.


Nvidia ended its second quarter of its fiscal 2013 with $3.28 billion in cash and equivalents. The company operates without any debt, for a net cash position of close to $3.3 billion. Net sales came in at $1.97 billion on which the company reported net income of $179 million, or $0.29 per diluted share.

The company is on track to report annual revenues of $4.0 billion, on which the company can report at least $400 million in net profits, or $0.65 per share. Note that both estimates are very conservative. Including the 4% jump in after hours trading, the market values the firm at $9.5 billion. Excluding the cash position of $3.3 billion, the market values the operating assets at $6.2 billion. This values Nvidia as 1.6 times annual revenues and 15 times annual earnings.

The valuation compares to a revenue multiple of 2.4 times for Texas Instruments (TXN), 2.3 times for Broadcom (BRCM) and 2.0 times for Marvell Technology. These competitors trade at 21, 25 and 13 times earnings, respectively.

Currently, Nvidia does not pay a dividend.

Investment Thesis

Shares of Nvidia trade with year to date gains of 10% so far. Shares peaked at $16 in February amidst general market optimism and fell back to $12 in June. Shares trade just above the $15 mark in after hours trading.

Investors react favorably to today's earnings report. Nvidia reported very strong earnings and revenues for the second quarter. Furthermore it issued a strong revenue outlook for the third quarter, while keeping a tight leash on operating expenses.

Investors are urging the company to do something with its excessive cash positions, running over $5 per share. The company has seen some exciting operational improvement resulting in strong growth. At the same time Nvidia has a very strong financial position and it is valued at a fair price.

I am a long term holder of the stock.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NVDA over the next 72 hours.