NVIDIA Corporation (NVDA)’s Move Is Smart, But There’s a Caveat

Moreover, NVIDIA Corporation (NASDAQ:NVDA)’s delay in integrating the LTE modem into the Tegra hasn’t helped matters as Qualcomm has kept increasing its lead and other players such as Broadcom Corporation (NASDAQ:BRCM) and MediaTek have been making good progress in the emerging markets. For instance, when Qualcomm had launched its latest batch of Snapdragon processors, it already had 50 design wins in the bag, while NVIDIA had Toshiba to show for its efforts.

The going has been tough for NVIDIA’s Tegra and a respite won’t be coming soon as QUALCOMM, Inc. (NASDAQ:QCOM) dominates the market and the best-selling smartphones and tablets don’t seem too keen to use the Tegra.

A smart move, but with a caveat

Despite all these potential pitfalls, I’m really impressed with the NVIDIA Shield. The Android-running handheld gaming device seems to have been priced pretty well and casual-hardcore gamers like me would probably purchase it. The device is set to hit the market in June and it remains to be seen how it fares. Nevertheless, it’s a good move on NVIDIA Corporation (NASDAQ:NVDA)’s part as it might create a new niche altogether in mobile gaming.

Shield’s nice specs and features such as streaming, although limited, could evolve positively over time if the device is a success. However, a major point of concern would be convincing the average consumer to purchase it, as an iPad Mini or a Nexus 7, with a larger screen, can be bought for less than Shield’s price. Moreover, the success of phablets and latest top-end smartphones, which either exceed the Shield’s 5-inch screen or are almost at par, would again be a big barrier.

Thus, as I said, the NVIDIA Shield might turn out to be a niche product and not appeal to everyone as carrying a device just for gaming while your smartphone is quite capable of doing the same doesn’t seem quite feasible.

The takeaway

There’s no doubt that NVIDIA pays a decent dividend yielding 2.10% and trades at a decent 15.6 times trailing earnings. However, analysts’ projections (according to Yahoo! Finance) don’t seem to be rosy, as evidenced by a forward P/E of 17.7 times and expectation of a drop in revenue for the current fiscal year.

Thus, it would be prudent for investors to not get carried away by NVIDIA’s success in GPUs as the threats to it are quite serious and its mobile endeavor has failed to take off as expected.

The article Why You Should Be Bearish About NVIDIA originally appeared on Fool.com and is written by Harsh Chauhan.

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