2013 Will Be a Year of Waiting for NVIDIA Corporation (NVDA) Shareholders

GRID: GPU of the future?
Cloud-based GPUs are another growth area for NVIDIA. GeForce GRID involves NVIDIA putting GPUs in a server to remotely run games or business applications. NVIDIA plans to address three main markets: 1. enterprise computing, 2. cloud gaming, and 3. software as a service. In the enterprise market, server-based GPUs will make virtual desktop applications run faster, particularly for tasks such as video or slideshows. This is the only type of GRID server expected to make a significant revenue contribution this year.

Looking further down the road, NVIDIA is working with partners to deliver cloud-based gaming to various connected devices. The game’s graphics would be rendered with server-based GPUs, and then streamed over the Internet to users. Lastly, NVIDIA plans to sell GRID servers to software-as-a-service providers, or SaaS providers. This would enable them to create graphics-intensive applications that would not otherwise be feasible with the cloud-based SaaS model. These three markets could drive substantial demand for high-end GPUs in a few years, but the revenue/earnings impact is likely to be modest this year, particularly because cloud-gaming and SaaS GRID servers will not ramp up until the end of the year.

Professional GPUs
NVIDIA’s last major growth area is in professional GPUs. The Quadro line of professional graphics cards finally returned to growth last quarter, due to the ramp up of new products based on the Kepler architecture. The company had posted disappointing results in that segment in the previous few quarters. NVIDIA is the clear market leader in this category, and as the global economy recovers, business spending should pick up, boosting Quadro sales.

There is a potentially even bigger growth opportunity in high-performance computing. NVIDIA leads this market, too. The company’s Tesla GPUs were selected last year to accelerate the world’s fastest supercomputer, Titan. However, Intel Corporation (NASDAQ:INTC) is entering this market with its new Xeon Phi coprocessor, and could steal some market share from NVIDIA. There is enough room for two competitors in this market, but Intel’s entrance could hurt NVIDIA’s performance in the near-term.

Patience, young grasshopper
NVIDIA has plenty of growth ahead of it. However, pursuing these growth opportunities has required massive R&D investments, which have crimped EPS over the past few years. This dynamic will continue through most of 2013. However, shareholders should be patient, as NVIDIA’s new products will drive faster revenue growth exiting 2013, which could finally allow the company to realize its full potential. Fortunately, NVIDIA is paying a nice 2.4% dividend and has finally restarted its share repurchase program.

The article 2013 Will Be a Year of Waiting for NVIDIA Shareholders originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg owns shares of Apple and NVIDIA. The Motley Fool recommends Apple, Google, Intel, and NVIDIA. The Motley Fool owns shares of Apple, Google, Intel, Microsoft, and Qualcomm.

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