NVIDIA Corporation (NVDA): The Bigger Picture

Earlier this week, I explained a few reasons why I'm convinced now is a great time to buy NVIDIA Corporation (NASDAQ:NVDA) stock.

The company not only beat estimates for both revenue and earnings per share with its latest quarterly report, but also achieved record gross margin for the second consecutive quarter. In addition, NVIDIA has returned more than $146 million of its $3.71 billion cash pile to shareholders so far this year in the form of dividends and share repurchases, and management plans to return at least another $850 million when all is said and done in 2013.

What's more, NVIDIA Corporation (NASDAQ:NVDA) expects an even better second half of the year thanks mainly to a large number of Tegra 4 processor design wins so far, and its valuation remains reasonable at just 16 times trailing earnings -- or nine times earnings if you back out all that cash.

Oh, and there's Shield, too Now, as fellow Fool Evan Niu so kindly pointed out, NVIDIA has just announced it will begin taking pre-orders for its new Android-based, Tegra 4-powered handheld gaming system, Project Shield.

Image source: NVIDIA.

For those of you keeping track, recall Shield was originally announced in January at this year's Consumer Electronics Show, and it admittedly seemed an odd sideshow for NVIDIA Corporation (NASDAQ:NVDA) to enter an already-crowded, weak segment of the gaming market. As a result, NVIDIA stock dropped following the announcement as analysts eyed its growing R&D expenses while year-over-year net profit fell.

To be sure, investors are still wondering why NVIDIA created Shield in the first place. In fact, the irony seems almost palpable as one of NVIDIA's own official blog posts from just a couple weeks ago bore the title "NVIDIA CEO: You Bring the Devices, We'll Bring the Graphics."

So what, exactly, is NVIDIA Corporation (NASDAQ:NVDA) trying to accomplish? Is the company trying to have its cake and eat it, too?

As I suggested in January, I don't think anybody really believes Shield will completely take the world by storm in and of itself. Remember, we're talking about a $349 device that targets a niche market of gaming enthusiasts. Meanwhile, fellow gaming industry player Sony Corporation (ADR) (NYSE:SNE) only finally saw stagnant sales for its competing Playstation Vita device improve after it recently dropped the price to $249.

But there are things that set Shield apart, too. For one, not unlike an Android-based smartphone, Shield gives gamers access to the Google Inc (NASDAQ:GOOG) Play game market as well as NVIDIA Corporation (NASDAQ:NVDA)'s own TegraZone. In addition, for gamers with a compatible GeForce GTX graphics cards, the device also provides the ability to seamlessly stream their favorite games from their gaming PCs via WiFi.

In the end, though, while some folks might really enjoy the device, it's hardly a game changer.

The thing is, I think NVIDIA knows it.

The bigger picture Instead, I'm convinced NVIDIA Corporation (NASDAQ:NVDA) is using Shield not as a way to significantly boost sales and earnings but instead as an avenue through which it can raise awareness for its platform-independent, cloud-based GRID gaming solution.

Image source: NVIDIA.

As NVIDIA reminds us on its website, the rest of the entertainment industry is already migrating to cloud-based streaming models "by delivering unlimited content to consumer devices, including smartphones, tablets, PCs, and TVs," at the same time noting millions of users now enjoy the convenience of streaming video and music through the likes of Netflix, Inc. (NASDAQ:NFLX), Hulu, Spotify, and Pandora Media Inc (NYSE:P). Heck, even The Walt Disney Company (NYSE:DIS)'s ABC television network just announced the awesome move to begin streaming its shows live online in New York and Philadelphia, and the entertainment giant plans to expand to other markets by the end of this Summer.

NVIDIA Corporation (NASDAQ:NVDA) goes on to reason:

It's only natural that gaming -- the fastest growing media segment and a $68 billion industry -- would follow this trend. NVIDIA is building on a unique legacy in gaming graphics and graphic performance to lead the way in defining the cloud-gaming experience.

Shield should serve as a perfect warm-up, then, for consumers to begin embracing NVIDIA's long-term, platform-free vision for the gaming industry.

Of course, I also own NVIDIA stock, so I won't complain if Shield surprises me and becomes a huge hit with a broad user base. In any case, whether Shield is a success in the traditional sales sense doesn't particularly matter, and I certainly won't be letting go of my shares anytime soon.

The article Don't Expect Shield to Move NVIDIA Stock... Yet originally appeared on Fool.com and is written by Steve Symington.

Fool contributor Steve Symington owns shares of NVIDIA. The Motley Fool recommends NVIDIA. It also recommends and owns shares of Google Inc (NASDAQ:GOOG), Netflix, Inc. (NASDAQ:NFLX), and The Walt Disney Company (NYSE:DIS).

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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