FundamentalsWritten by Ophir Gottlieb, 10-06-2015
NVIDIA is a transformational company that now has its hands in the most innovative segments of technology and is one of the few identifiable crown jewels of tomorrow's world. It is truly a 'secret weapon' in self-driving car algorithms and has already engaged Tesla, Aston Martin, Rolls Royce and Audi with what can only be described as 'the guts of the future' (details below).
The firm holds the dominant position in the GPU (graphic processor) market which means it controls the very guts of the gaming segment which is expected to reach $118 billion in two years. The company has openly challenged Apple, stating rather bluntly that its TV box (Shield) is far superior. Further, NVDA is a critical component within mobile devices.
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While the market has corrected, the stock is up over 30% in the last quarter and over 40% in the last year. The marvel behind NVIDIA stands squarely on the footing of its strategy to become the driving force underlying large technology segments and to power those segments with every major company. This edge allows the firm to benefit from segment growth, rather than to make a bet on any specific provider. With new product development and continued innovation, NVDA is a true technology disruptor.
Here's a chart of NVDA's revenue in the blue bars and levered free cash flow in the orange line. Note that revenue in the last year is at an all-time high.
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Self Driving Cars
The company's strategy in the self-driving car segment is to become a part of the internal workings that all manufacturers depend on. NVIDIA announced that its Tesla Accelerated Computing Platform secured a deal with longtime partner Microsoft (and its Cloud) and NVIDIA processors already power the dashboard and infotainment systems included in Audi vehicles. NVIDIA could very well end up being the hyper critical system behind all self-driving cars. Check this out:
The truly unique product offering NVDA provides (called PX) is that "instead of using lasers, radars, and ultrasound to detect obstacles, there’s a neural network at the base of its technology. The best part about this deep-learning system is that it’s fully automated" (Source: Market Realist).
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Even though the PC market continues to shrink overall, NVIDIA's gaming-related growth continues skyward. Much like the steel company stocks were the foundation to the railroad boom, NVIDIA is the foundation of the soon to be $100 billion+ gaming industry.
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Smart TV: The War Begins: NVIDIA and Apple
NVIDIA has spent the last couple of years positioning itself as a full fledged player in the console field, releasing the Shield Portable, Shield Tablet and now the Shield set-top box. (Source: Nvidia Shield is the set-top box that makes Apple TV look like a kid's toy).
Here's where it gets interesting. NVDA's Matt Wuebbling (general manager for Shield) addressed the Apple TV and said "[w]e think this validates the category of the smart TV console that we pioneered." Of course, when AAPL enters a category, it grows massively larger -- we've seen that with the iPod, iPhone and iPad. But it gets better. NVDA is claiming rather loudly that its product is substantially better than Apple's. Here are some specs:
NVIDIA goes on to write that Shield is "the best choice for gamers, the only choice for 4K and the logical choice for Chromecast." They further expanded by writing that "By 2018, consumers will own more than 100 million ultra-high definition 4K TVs. And SHIELD remains the only media streamer that supports 4K content. There's plenty of content already available — from both Netflix (NFLX) and YouTube — and plenty more coming.
NVIDIA stands squarely in the middle of gaming industry, connected and self-driving cars, mobile devices and Smart TV with a shrewd strategy that allows for market dominance. The company's recent past maybe only be the beginning of a remarkably bright future. If you're looking for a potential crown jewel of tomorrow's technology, NVIDIA may be the place to start.
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