PC Gaming Can Take NVIDIA HigherNVDA) shares trade at their 52-week highs after gaining 12% in 2015. This is not surprising as the company is making the most of the opportunity present in data centers, servers, and high performance graphics applications. At the same time, NVIDIA is also seeing growth in demand for gaming applications. Now, looking ahead, I believe that NVIDIA will be able to break beyond its 52-week highs as the company is making impressive progress in a number of areas.
Witnessing growth across diverse end markets
NVIDIA’s PC gaming revenue has increased at an annual rate of 8% in the past few years and the trend will continue going forward.
Moreover, there is a trend of consumers increasingly shifting toward games from other traditional entertainment tools such as music, box office, home video and books. This is good news for NVIDIA as the expansion of the global PC gamer base and their entertainment spending shift toward purchasing and playing new games is expected to accelerate demand for superior graphics solutions. This will expand NVIDIA’s addressable market going forward and allow the company to improve its top and bottom lines.
NVIDIA’s strategies to tap increasing end market demand
To tap the opportunity present in the end market, NVIDIA is focused on innovating new products. For example, the company has introduced the Maxwell architecture in gaming notebooks, and this has significantly improved the gaming performance by up to five times. Apart from enhancing the gaming performance, the architecture will help NVIDIA deliver a 1080+ resolution gaming experience, longer battery life, and a fully-featured gaming interface.
As a result, NVIDIA will be able to expand its gamer base in both the casual games and enthusiast segments. On the other hand, NVIDIA has closed its Icera modem operations with strategic sales of its operations or technology. The company restructuring charges are estimated to be in $100 million to $125 million range, but they will be beneficial in the long run as NVIDIA will be able to streamline its business operations.
Moreover, though NVIDIA is facing tough competition from other key technology rivals such as Qualcomm and Intel, the fact that the company targets a specific market will allow it to target a different end market. Moreover, to compete against the likes of Qualcomm and Intel, NVIDIA’s Tegra processors for mobile will come in handy as they are gaining traction in the end market.
As mentioned earlier, NVIDIA trades at its 52-week high, but the company still carries an attractive valuation. It has a trailing P/E ratio of 24 and a forward P/E ratio of just under 20. These multiples indicate that NVIDIA is expected to put in a better bottom line performance going forward.
Additionally, NVIDIA has a robust balance sheet as its cash position stands at $4.50 billion as compared to a lower debt of $1.40 billion. Hence, the company is well-placed to make growth investments going forward that will allow it to sustain its impressive financial growth.
Published on Sep 17, 2015By Harsh Singh Chauhan