Nvidia (NVDA), a leading designer of graphics chips for use in a wide variety of applications from consumer mobile to HPC, really hit it out of the park when it announced its quarterly results on 8/10/2012. The company beat on the top and bottom lines, saw strong growth in its two primary market segments, and confirmed that NVIDIA's management team knows exactly what direction Nvidia needs to take in order to thrive in a world beyond traditional PCs. I was bullish on Nvidia ahead of its earnings report and it seems that the majority of my predictions were correct: Tegra was incredibly strong and graphics was also very strong.
Graphics: Wait, I Thought You Were Dead?
Nvidia's bread-and-butter is still high performance graphics chips for gamers and professional users. This segment saw a 15.3% sequential increase. Compared to the competition's sequential 5% decrease (in-line with seasonal trends), this is a very bullish indicator for the health of this industry. Despite all of the doom and gloom that surrounds Nvidia due to the hype surrounding integrated graphics solutions from AMD (AMD) and Intel (INTC), it's clear that gamers still favor performance and image quality of a discrete graphics card, a point I made in my article, "Why Nvidia Shouldn't Fear Integrated Graphics".
The company noted that there was strong demand for discrete graphics solutions in China, where there is a very strong competitive PC gaming culture: in a competitive gaming scenario, performance and compatibility are everything, and Nvidia's strong developer relations team coupled with its potent hardware likely kept the "threat" of inferior performing integrated solutions at bay.
In short, the proclamation that "PC Gaming is dead" and that "integrated graphics ought to be enough for anybody" are proving to be simply not true, and in fact this segment should still be considered a growth area for Nvidia, even if it's not as widely followed as mobile.
Tegra: My, Aren't You Popular!
Ah, Tegra. Nvidia's horse in the mobile race. I'll spare you the technical details, but the point is that people want it. A part of this is likely due to the fact that it is a potent design on 40nm, which allows OEMs to adopt it without having to fear supply constraints. And another part of this is that the chip simply offers an excellent price-to-performance ratio. While it's not as fast on the graphics side as Apple's (AAPL) A5x nor does it utilize sophisticated, custom-designed CPU cores that are faster than those found in any other mobile SoC like the Qualcomm (QCOM) Snapdragon S4, it's a very solid, reliable solution that meets performance and power-draw expectations. In this business, it's not about having the fastest benchmarks (although that'd be nice); it's about having the right product at the right time at the right price point.
It's clear that the $200 tablet space will be popular, as I suspect tablets will take their place as a complementary computing device. With a strong, power efficient CPU side and good graphics performance (with great features and developer support thanks to Nvidia's developer relations team), Nvidia's Tegra lineup is attractive to OEMs, having found homes in such headline products as Google's (GOOG) Nexus 7 tablet, Microsoft's (MSFT) Surface, and rumor has it Amazon's (AMZN) next Kindle Fire.
This segment grew 35.5% sequentially, solidifying Nvidia's strategy here, and confirming that the company's Tegra bet is paying off.
So, Is It A Growth Stock Now?
The question here is should Nvidia be treated like a growth stock? The answer is, in my humble view, a resounding "yes". The growth rates in Nvidia's two main segments is strong, and I believe that the Tegra business, in particular, should see significant growth ahead as the company takes market share, coupled with the secular growth of the tablet/smartphone markets in general.
It's a good time to own Nvidia, and I believe that anytime the market gives you an opportunity to add to your position or initiate a new position, you should strongly consider taking it. This is a well run company that has positioned itself well in this new computing market, and I think we've only just begun to see what this company can do.
