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NVIDIA Corporation (NVDA) Analysts Debate: Is This a Top Stock?

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The Motley Fool has been making successful stock picks for many years, but we don’t always agree on what a great stock looks like. That’s what makes us “motley,” and it’s one of our core values. We can disagree respectfully, as we often do. Investors do better when they share their knowledge.

In that spirit, we three Fools have banded together to find the market’s best and worst stocks, which we’ll rate on The Motley Fool’s CAPS system as outperformers or underperformers. We’ll be accountable for every pick based on the sum of our knowledge and the balance of our decisions. Today, we’ll be discussing NVIDIA Corporation (NASDAQ:NVDA), one of the world’s leading graphics chip makers — and a growing presence in mobile devices.

NVIDIA by the numbers
Here’s a quick snapshot of the company’s most important numbers:

Statistic Result (TTM or Most Recent Available)
Market cap $7.6 billion
P/E and forward P/E 14.3 and 11.8
Revenue $4.3 billion
Net income $563 million
Free cash flow $641 million
Return on equity 12.5%
R&D ratio 26.8%
Market share
  • Discrete graphics processors: 17%
  • Smartphone applications processors: 5%
  • Tablet applications processors: 17%

Sources: Morningstar, YCharts, and news reports.

Alex’s take
I think NVIDIA Corporation (NASDAQ:NVDA) has a lot going for it, but there are a few reasons for caution, as well. For one thing, the company is finally making moves into integrated smartphone processors with the Tegra 4i, its first with LTE capability. That will take the fight to longtime integrated-smartphone-chip category killer QUALCOMM, Inc. (NASDAQ:QCOM) and its Snapdragons. NVIDIA Corporation (NASDAQ:NVDA) also happens to be the top chip maker for Google Inc (NASDAQ:GOOG)‘s Android tablets. That doesn’t mean as much today as it’s likely to in the future, as lower-cost tabs undermine the iPad’s dominance.

On the flip side, NVIDIA Corporation (NASDAQ:NVDA) isn’t actually a category leader anywhere. Apple Inc. (NASDAQ:AAPL) still dominates tablet chips by dint of its in-house chip designs. QUALCOMM, Inc. (NASDAQ:QCOM) owns smartphone processors. You might think that NVIDIA Corporation (NASDAQ:NVDA) leads in PC graphics chips, but that’s not true, either — Intel Corporation (NASDAQ:INTC) has a commanding lead in that segment, serving 63% of the GPU market to NVIDIA’s 17% in the fourth quarter of 2012. The Tegra 4i might change NVIDIA Corporation (NASDAQ:NVDA)’s fortunes in smartphones, but the company remains heavily reliant on its legacy graphics processors, as 81% of 2012 revenues came from the GPU segment. The Tegra segment has a long way to go to take over as NVIDIA’s moneymaker.

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