Can Nvidia’s Stock Benefit from New Optimus Technology for Notebook PCs?
Nvidia (NASDAQ:NVDA), which competes with AMD (NYSE:AMD) and Intel (NASDAQ:INTC) in the graphics processor market, has introduced a technology it calls Optimus that is designed to optimize graphics performance and battery life on notebook PCs. We believe Optimus can benefit Nvidia’s notebook graphics business and the company’s stock.
As consumers continue to shift from desktop PCs to notebook PCs, the notebook graphics market will be increasingly important for Nvidia’s business. We believe that the Optimus technology can make Nvidia’s discrete graphics processing units (GPUs) more attractive to PC makers like Dell, HP and Acer, and lead to higher percentage of new notebook PCs contain discrete GPUs.
Below we highlight the importance of the notebook graphics business for Nvidia, the benefits of the new Optimus technology and how there could be a $1 (9%) upside to Nvidia’s stock if Optimus succeeds in increasing discrete notebook GPU penetration.
Discrete Notebook Graphics Cards 6% of Nvidia’s Stock
We estimate that the discrete graphics processing units in notebook PCs constitute only about 6% of Nvidia’s stock. In comparison, discrete desktop graphics cards are about 12% of Nvidia’s stock.
Nvidia leads the discrete graphics market for both notebooks and desktops with a share of 67% and 65%, respectively, driven by its successful GeForce brand. However, the value of Nvidia’s discrete notebook GPU business is lower due to a smaller market for discrete notebook GPUs compared to discrete desktop GPUs. This has traditionally been the case since discrete GPUs consume more power than integrated GPUs and battery life on notebooks is often a constraint.
Optimus Improves Notebook Performance and Conserves Battery Life
Nvidia’s new Optimus technology optimizes power consumption by automatically shifting between the high power discrete graphics processing unit and the low power integrated GPU based on the graphics performance needs of the applications being run. By shifting to the low power GPU when graphics demands are low, Optimus helps extend the battery life for notebooks.
9% Upside with Higher Discrete GPU Penetration
In recent years, the trend amongst both desktop and notebook graphics has been to toward more integrated GPUs rather than discrete GPUs. This trend has been driven by increasingly capable integrated GPUs that use less power. We estimate that the discrete notebook GPU penetration for Nvidia has decreased from 35% in 2005 to 20% in 2009.
However, the Optimus software can make it more likely for PC makers to include discrete GPUs in notebooks and increase Nvidia’s GPU penetration. By modifying the forecast above, you can see how there would be a $1 (9%) upside to our $12.25 estimate for Nvidia’s stock if discrete notebook GPU penetration were to increase to past levels of 35% as a result of Optimus.
For additional analysis and forecasts, here is our complete model for Nvidia’s stock.