Nvidia (NVDA) reported a solid set of numbers for the second quarter that was broadly in line with the estimates. In fact, its earnings exceeded the expectations led by strong growth in gaming, data-center and cloud, and mobile operations. The chip maker is best known for its components used in computers and video games that produce high visual effects. The company has been expanding its product mix to counter tough competition and also to adapt to the changes in the industry. Starting with its numbers, let's have a detailed analysis of this stock.
Results and beyond
Its revenue for the quarter rose 13% to $1.1 billion and came in line with the analysts expectations. Earnings rose to 30 cents a share compared to 23 cents last year, and topped the consensus estimate of 19 cents per share.
The numbers seem to be quite decent and reflect the company's expanding business. As already mentioned, Nvidia is venturing into new segments in order to stand its ground in a highly competitive environment. The chip maker benefited from the expansion into cars and cloud computing, which was evident in its numbers during the quarter. Nvidia's Tegra technology has been incorporated in various cars such as in some of the recent models of BMW . Similarly, Volkswagen Passat will incorporate Tegra for its infotainment system and going forward, Nvidia has various such orders in this segment. Its Tegra processor revenue for cars rose 74% during the quarter, which is a significant achievement and will further strengthen its balance sheet in the days to come.
The Tegra system is also used in smartphones; however in this segment Nvidia had to face tough competition from its peers such as Qualcomm, which has considerably higher market share in smartphones and tablets. Consequently, it shifted its focus to the entertainment industry and navigation systems in cars. In this direction, the company launched Shield, which is its own indigenously developed tablet. The tablet is designed to attract gaming enthusiasts, which will strengthen its presence in the industry.
Chips are driving growth
In the gaming segment, GeForce is yet another strong hold for the company, which powers around 100 million PC's around the world. The recently launched GeForce GTX GPU is even more enhanced than its previous versions, which has the capability to take on the latest generation gaming consoles. Thus, GeForce is a strong product for the company, which delivered solid results in the past and is expected to continue the same momentum in the coming years.
Apart from gamers, GPUs (graphic processing unit) are used extensively by professionals involved in designing. For instance, Abode Illustrator is used for designing purposes and its performance can be enhanced using Nvidia's Quadro GPU, making the experience even better. Therefore, the workstation market also presents huge potential for Nvidia to grow. Tesla also had a strong quarter with record numbers, and the momentum continues that will further add to both its top and bottom line in the days ahead.
In cloud computing, the company made significant progress by offering servers embedded with Nvidia chips to companies such as IBM, Dell and HP. Along with this, many large enterprises are kicking the tires for its GRID graphics technology for use in data centers. During the quarter Nvidia launched GRID test drives, which according to the management will be great help to enterprise IT professionals. It received a great response with more than 10,000 users in the first eight weeks of its launch.
After a strong set of numbers during the quarter, the company is well positioned to deliver similar growth in the third quarter as well. The company has a positive outlook on PC sales in the coming months. Along with this, its entry into cars and data centers is seen as a great a potential, which will further strengthen its business.
Conclusion
Nvidia has a trailing P/E of 20.6 and an improving forward P/E of 17.1, which is a positive cue of strong fundamentals. In addition, the company had a strong performance during the quarter, which was better than its peers and the management is optimistic for the upcoming quarters as well. In a statement to Reuters, FBR analyst Chris Rolland said "They're doing better than their peers. … The Tegra number was better than expected." All in all, the company has a strong outlook and seems to be well positioned for growth.
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