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

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

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!