Nvidia Weekly Notes: VMware Partnership & Asus Tablet

This past week has been pretty uneventful for Nvidia (NASDAQ:NVDA) though it did announce a strategic partnership to work towards the development of virtual 3D graphics technology VMware (NYSE:VMW). Such technology can enable the high end virtual desktops and applications via remote access. Additionally, the company announced new 3-D glasses and monitors to enhance the 3-D experience of gamers and viewers. Furthermore, last week also revealed that the upcoming Asus tablet will feature Nvidia’s new quad-core Tegra 3 processor. Nvidia is developing its Tegra series to compete effectively against Qualcomm (NASDAQ:QCOM) in the mobile market.

While the above were definitely positive developments, they weren’t significant enough to move the stock.

The stock hinges primarily around broader PC market strength and how GPU attach rates are figuring. These attach rates are highest in Europe, at 80%, followed by 60% in China. ^[1] This implies that more than half of the Chinese PCs are bought along with GPUs. Given that Western Europe and the U.S. are facing sluggish economy, the question that emerges is ‘will Nvidia’s upcoming Q3 2011 results suffer?’ We don’t think so. Taking cues from Intel’s (NASDAQ:INTC) results, we believe that Nvidia is significantly benefiting from growth in emerging markets, including China and consequently we stay positive on the stock.

Our price estimate for Nvidia stands at $19.90, implying a premium of about 35% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Intel, Microsoft, Nvidia: Implications Of Soft PC Report, Barron’s, Oct 13 2011 [↩]