Nvidia’s Got Cash and Growth to Ride Out Tough Market

October 4th, 2011 by Trefis Team
-36.40%
Downside
146
Market
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Trefis
NVDA: NVIDIA logo
NVDA
NVIDIA
Nvidia Stock Chart

Source: Google Finance

Nvidia’s (NASDAQ:NVDA) stock has dipped over 10% in the last week as the uncertainty around economy of Europe and that of the U.S. continues threatens its outlook. However, despite the current macro concerns regarding Nvidia, we believe there is plenty of upside coming from continued growth in mobile devices even if professional GPU shipments suffer in Q3, which is a growing risk.  Nvidia competes with other players like AMD (NYSE:AMD), Intel (NASDAQ:INTC), Qualcomm (NASDAQ:QCOM) and Texas Instruments (NYSE:TXN) in graphics and mobile chip businesses.

See our complete analysis for Nvidia’s stock.

The Silver Lining: Mobile Chips And Cash Constitute almost 40% To Nvidia’s Stock

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We estimate that about 18% of Nvidia’s value comes from mobile & game console computing chips. Despite the economic uncertainty, mobile devices such as smartphones and tablets are likely to experience healthy growth going forward. This is the same growth Nvidia was betting on when it presented its very optimistic outlook for 2012. In addition to this, about 20% of Nvidia’s value comes from cash sitting on its balance sheet by our estimates – which works out to around ~$4.10 or 1/3 of the current market price.

The Risk: GPU Business Constitutes 55% To Nvidia’s Stock

The slowing economy is the key risk that surrounds Nvidia right now, which is affecting consumer PC demand and could potential slow the growth of professional GPUs. The positive side is that more PC consumers are getting discrete GPUs despite the launch of Sandy Bridge. Nevertheless Nvidia should be more worried about how the professional GPU market plays out since it constitutes almost 35% to Nvidia’s value as per our estimates.

The trend in Q2 was normal, as Jon Peddie Research reports, and Q3 shipments might determine how this market is coping up with economic turmoil. [1]

Our price estimate for Nvidia stands at $19.90, which implies a premium of about 70% to the market price.

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Notes:
  1. Workstation market behaving as expected in the second quarter of 2011, Jon Peddie Research Press Release, Sept 6 2011 [↩]