Should You Buy Into Nvidia's Rally?

NVIDIA’s (NVDA) shares have gained significantly ever since the market turmoil stopped. I have been bullish on the stock for quite some time, and I have recommended buying it multiple times over the last few months. Although the stock’s valuation is not conservative, I think NVIDIA can continue growing, which is why I think it is still a good buy.

NVIDIA’s Drive PX2

NVIDIA is the leading firm in the graphics card segment, as it holds 80 percent share, whereas, rest of the 20 percent belongs to its foremost rival Advanced Micro Devices (AMD). Recently, NVIDIA smashed quarter fourth earnings on sturdy revenue growth.
NVIDIA’s 68 percent revenue growth in the automotive sector was striking. In Q4FY15, automotive sector only accounted for $93 million from overall top-line of $1.4 billion.

As it is very clear that the company has leveraged its GPU business, but the company is lagging behind in its Tegra ARM processor segment. In Q4FY15, NVIDIA generated only $157 million from its Tegra processor segment. The revenue generated from Tegra processor segment still lags the revenue generated from GPU segment extensively.

But that’s not the end of the story as Tegra has some significant role to play. The Tegra K1 Denver is integrated in the Google Nexus 9 tablet, whereas its newer version is used in the Google Pixel C Android 2 in 1 as well as in NVIDIA’s self-manufactured TV set top box.

On the other hand, currently, automotive sector appears to be a huge opportunity for Tegra, as it powers the enormous touch screen of the Tesla’s Model S and infotainment systems of several other vehicles. As per NVIDIA’s management, Tegra processor is currently present in 5-6 million automobiles with around 20 million in the pipeline.

Recently, at CES, NVIDIA revealed the Drive PX2, a supercomputer of small box size. This new product from NVIDIA is perfect in many ways, as it combines both ARM SOCs as well as superior performance GPUs in a single platform. It also comprises software designed to support self-driving vehicle processing, with situational awareness and sensor processing.

Apart from this, Volvo has planned to try Drive PX2 in 100 SUV’s for autonomous vehicle improvement. If Volvo makes progress, this could offer a big boost in its sales. Clearly, NVIDIA has gained a firm hold over the automotive sector and has diversified its business pretty nicely. For this reason, I expect NVIDIA’s shares to continue performing nicely in the coming months.
Published on Feb 26, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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