As computing becomes more visual, growth opportunities for NVIDIA Corporation (NASDAQ:NVDA) are abound. Furthermore, the firm’s expansion into the supercomputing field, providing scientific and industrial organizations with its Tesla product line, creates massive upside opportunities as well.
However, strong competition from Advanced Micro Devices, Inc. (NYSE:AMD), Qualcomm, and Intel Corporation (NASDAQ:INTC) and fast developing product cycles remain a strong concern. NVIDIA Corporation (NASDAQ:NVDA)’s success relies enormously on its capability to remain innovative and efficiently shift from the PC market — that accounts for most of its current revenue — to the mobile and tablet segment. With margins and returns considerably below the industry averages and an EPS growth rate projected in the 11%-12% range for the upcoming years, I would recommend holding on to this company.
Nevertheless, keep an eye on it, you wouldn’t want to miss an attractive investment chance. A strong performance of its Tegra chips could drive earnings upside while a pullback would make its valuation too attractive to ignore.
Another competitor that leads the market
Maxim Integrated Products Inc. (NASDAQ:MXIM) is another leading company in the tech segment. As an analog chipmaker serving various end markets, the company benefits from both mature and expanding sectors. Within this last segment, its strong relationship with Samsung positions it to massively profit from the spurt in the demand for smartphones. Moreover, its wide product portfolio opens various other development avenues, especially in the consumer electronics, industrial, and communications markets.
One of the main strengths of this company stems from its high-performance analog chips, which tend to offer long lives — as developing them requires plenty of time, research and money — stable pricing, and strong profitability. This provides the firm with a wide economic moat (Morningstar). Furthermore, its business model has proven very effective, returning one of the highest gross margins in the industry, usually over 60% over the last eight years.
With the ability to keep competitors behind and its products selling well, the outlook seems promising for Maxim Integrated Products Inc. (NASDAQ:MXIM). Going forward, its recognized engineering and design teams should provide an edge over its peers as analog systems require higher levels of customization. Its recently developed integrated power management chips that allow manufacturers to cut costs and increase battery lives should open up more opportunities.
Trading at 20.2 times P/E, at discount to the 24.8x industry average, while offering a 12% average annual consensus growth rate for the next five years to come and yielding 3.19% in the form of dividends — accompanied by healthy cash flows and strong cash generation capabilities — I’d recommend buying this stock.
