NVIDIA Is a Winning Bet

NVIDIA (NVDA) announced first quarter ended May 1, 2016 total revenue of $1.30 billion, down 7 percent sequentially from $1.40 billion in the fourth quarter of 2015 and an increase of 13 percent from $1.15 billion in the first quarter of 2015. Going forward, the company has provided a revenue outlook for second quarter of fiscal 2017 and estimates total revenue to be in the range of $1.32 to 4.05 billion.

NVIDIA declared first quarter of fiscal 2017 adjusted net income of $263 million or $0.46 per diluted share, down 11 percent sequentially from $297 million in fourth quarter of fiscal 2016 and up 41 percent year-over-year from $187 million or $0.33 per diluted share during the first quarter of fiscal 2016.
Moving ahead, the adjusted gross margin for second quarter of fiscal 2017 is estimated to be in the range of 57.5 percent to 58.5 percent.

The global visual computing major reported continued year-over-year growth in both its top and bottom lines primarily driven by attractive expansions witnessed across all of the company’s key platforms including, auto, datacenter, professional visualization and gaming.

Making smart moves            

NVIDIA has gradually shifted to a single GPU architecture comprising of each of the key gaming platforms including, PC, PS3, XBOX 360, PS4 and XBOX ONE. The notable installed base of this uniquely developed unified architecture is believed to further push the newly developed games towards reality and thus, diminishing any differences between the machine-developed characters and real people or objects.

NVIDIA’s QUADRO platform is strategically crafted for seamlessly implementing pro visualization that includes advanced visual computing specifically developed for 25 million scientists, artists and designers. Globally, there are 15 million users in the manufacturing & AEC industry, 9 million users in media & entertainment industry and 1 million users in scientific visualization industry which all hugely depend on pro visualization computing and thus, create a huge market for the graphics chip maker.

What’s driving growth?

The current generation unified architecture of NVIDIA is believed to prove a significant cost saver for the company, allowing it to easily introduce any new features or modifications just in the unified architecture implemented across all the gaming consoles. The innovative QUADRO platform is expected to drive significant customer traction across a wide range of industries including science & technology, design & craftsmanship and media & entertainment.

The advanced IRAY technology of NVIDIA allows for physically-based rendering and it is leveraged by several million designers for sophisticated engineering design, innovative product design, attractive AEC/building design, superior media & entertainment and other materials based on MDL.

Advanced interactive streaming is now possible with IRAY server which also provides with IRAY scalability, allowing unique entry into the cloud, and into the data center. In addition, QUADRO professional for VR/AR is increasingly used in manufacturing, collaboration, design, architecture, medical and digital content creation. Going forward, NVIDIA is developing next-generation PRO VR/AR technologies with NVIDIA VR READY for system builders and NVIDIA VRWORKS for developers that allows for expanded data sets and photorealistic VR. Therefore, NVIDIA is impressively implementing visualization everywhere that is accessible from personal computers including laptops, datacenters and the cloud.

IRAY combined with QUADRO technology is believed to offer superior graphics experiences to the gamers, empower the developers with advanced tools to make breath-taking graphics, an ultra-realistic gaming environment and attractively implement photorealistic VR.

NVIDIA has strategically developed an innovative Pascal GPU architecture which is expected to allow significant growth for VR, gaming, and deep learning. This innovative graphics development architecture is expected to drive significant customer traction including both the developers and gamers.

During the first quarter of fiscal 2017, NVIDIA signed a share repurchase agreement worth $500 million and offered a consolidated $62 million of cash dividends in the quarter. Going forward, the visual computing behemoth targets on returning nearly $1.0 billion to the key stakeholders in the form of dividends and strategic share repurchases. NVIDIA is expected to pay its subsequent quarterly cash dividend of 11.5 cents per share on June 20, 2016, to all the key shareholders as of May 26, 2016.

NVIDIA is keen on returning a majority of the invested capital to the key stakeholders in the form of dividends and planned share repurchases which are supported by the company’s significant top line growth driven by rising customer traction for its innovative Pascal GPU architecture driving superior virtual reality.

Conclusion

Overall, the investors are advised to “Buy” equity in NVIDIA Corporation considering the company’s significant long-term growth prospects being supported by a healthy balance sheet with an attractive total cash position of $4.75 billion against smaller total debt of $1.43 billion only, encouraging it to make future growth investments while delivering attractive shareholder returns. The profit margin of 13.09% seems satisfactory. The PEG ratio of 1.21 indicates healthy company growth and somewhat better than the industry’s growth average of 0.97.
Published on May 23, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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