NVIDIA Corporation (NVDA), QUALCOMM, Inc. (QCOM): What Is the Best Semiconductor Strategy?

Page 1 of 2

NVIDIA Corporation (NASDAQ:NVDA) is definitely on its way to becoming more profitable as the company announced in a recent press release that it would be licensing its GPU cores, and visual computing patent portfolio to device manufacturers.

The likely beneficiaries are the device manufacturers, NVIDIA, and pure-play foundries like Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM).

NVIDIA Corporation (NASDAQ:NVDA)

Growing gross margins for NVIDIA

Source: Ycharts

Over the past ten-years, NVIDIA has been able to grow its gross margins from 30% to 52.94%. The pursuit of a license driven business model is what is causing the rapid growth in gross margins.

QUALCOMM, Inc. (NASDAQ:QCOM)’s licensing revenues grew Qualcomm’s gross profit margins in the past five-years, similar to NVIDIA. Comparatively, Qualcomm has a 62.25% gross profit margin, so it is definitely possible for NVIDIA Corporation (NASDAQ:NVDA) to maximize profitability better with the added licensing of its GPU cores, and visual computing patent portfolio.

QUALCOMM, Inc. (NASDAQ:QCOMprojects that the number of machine-to-machine communication opportunities will increase to 50 billion machines and 100 billion objects. So going forward it is highly practical for NVIDIA Corporation (NASDAQ:NVDA) to openly license its graphics technologies out to any company that can find a practical use for them. After all, it is highly probable that the number of objects with a screen will grow, and device manufacturers being able to have access to the world’s most advanced graphics patent portfolio could only help. Almost anything with a screen could use an NVIDIA graphics processor.

NVIDIA: the sky is the limit

NVIDIA has a set of core-businesses that it can rely on for growth, and it currently estimates that the total addressable market (total market value for each of these businesses) is around $26 billion. In the current fiscal year NVIDIA Corporation (NASDAQ:NVDA) generated $4.3 billion in revenue, so it composes a small, yet respectable corner of the various markets it operates in.

The company is currently split into mobile ($10 billion addressable market), NVIDIA GRID (a brand for its cloud-virtualization graphics solutions, and it also has a $10 billion addressable market), and its GPU segment ($6 billion addressable market). The company’s potential growth opportunities primarily involve its NVIDIA GRID segment and mobility.

There’s also the future licensing revenue stream for unique graphics driven processes that are most likely to come from machine-to-machine communication, which is a 50 billion unit market that has yet to be addressed.

Analysts on a consensus basis anticipate this company to grow earnings by 12% on average over the next  five years. The company’s growth will most likely be driven by mobile and GRID. However, I don’t anticipate any upside surprises over the short-term as the company has not been able to deliver a Tegra 4 design win against Qualcomm Snapdragon 800.

The company currently pays a 2.08% dividend yield and is fairly valued at a 15.5 earnings multiple when considering the fact that there’s no near-term upside catalyst.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!