Discrete mobile GPUs aren’t as popular as their PC cousins, but NVIDIA trails market leader Imagination Technnologies‘ PowerVR by a wide margin in that area, as well. PowerVR purportedly commanded 78% of the mobile GPU market in midyear 2012, while NVIDIA and Qualcomm combined for less than 20%. Then there’s the matter of its sixth-place smartphone finish.
Pro: NVIDIA is (usually) consistently profitable
NVIDIA has had a rather variable history of profitability in recent years, but if you look past the company’s financial-crisis doldrums, the company has been rather consistent in both profit margins and in its return on equity:
NVDA Profit Margin Quarterly data by YCharts
With a P/E near decade lows, NVIDIA looks to be a solid bargain today, particularly if both earnings per share and free cash flow continue to show growth over the coming quarters:
NVDA EPS Diluted TTM data by YCharts
Con: NVIDIA hasn’t actually made fundamental progress in five years
A 10-year chart might show some strong growth, but NVIDIA hasn’t grown its top or bottom lines from 2009 to the present day:
NVDA Revenue TTM data by YCharts
NVIDIA’s made some progress toward positive momentum, but it’s not there yet. As we head into 2013, the company will benefit simply from shifting the starting point further into the recession period, but that won’t be enough to justify investor excitement. Nor have the past four quarters offered great excitement — NVIDIA’s posted a 7% increase in revenue for the trailing 12 months, but declines on both earnings per share and free cash flow.
The final call: staying on the sidelines
There are reasons to get excited about NVIDIA, but they don’t (in my mind) outweigh the reasons for caution. The next few quarters should provide an interesting view of NVIDIA’s future, as it moves forward with a true smartphone-chip competitor to Qualcomm. But any big deals will take time to show up on NVIDIA’s bottom line, and the challenges of dedicated competitors can’t be ignored. I wouldn’t vote against NVIDIA with my money, but I wouldn’t put cash on the company, either. Show me something great, NVIDIA. I want a reason to change my mind.
The article Does NVIDIA Deserve a Place in Your Portfolio? originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes owns shares of Intel. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.The Motley Fool recommends Apple, Intel, and NVIDIA and owns shares of Apple, Intel, and Qualcomm.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
