QUALCOMM, Inc. (QCOM): NVIDIA Corporation (NVDA)’s Diversified Approach to Growth

Page 2 of 2

ARM has 95% gross margins and 25% net margins. It is a fairly profitable enterprise. It sports no debt. However, in the last 3 years it is up 302%. It has a P/E ratio of 76. By most measures, it can be called overvalued. The PEG ratio is almost 2. The market is aggressive in valuing ARM’s growth.

I would warn against ARM, except that the market it is in is growing. The demand for ARM chips or ARM-architecture is going up. The 64-bit Opteron chips that will go into the microservers will utilize 64-bit Cortex cores. I would hate to be averse to ARM and then have it grow to ridiculous levels.

There are a lot of companies that license the architecture and design their own chips, like Apple and Samsung. Qualcomm’s old core, the Scorpion, was its own design based on ARM’s architecture. Now it has Krait for Snapdragon, which is extremely similar to the Cortex A15.

If ARM can create fantastic designs, then it might sell more designs instead of just the architecture licenses. Based on its potential you might consider a small investment. I would definitely buy more if the market collapses and takes ARM with it. Do not buy more if just ARM collapses.

NVIDIA’s mostly flat stock is good

I apologize to those who have been holding NVIDIA Corporation (NASDAQ:NVDA) forever, because it is not completely flat. It was at $15, but it is down to the $12 level now. It has been hovering around that level for a while now. I love stocks that are flat and have some growth still left. Coupled with the cash, dividend, and low debt, I think it is one of those stocks that will move fast when it finally does move. The market is on fire, but more importantly, it can be volatile.

NVIDIA Corporation (NASDAQ:NVDA) ’s revenue is growing, so its business is not hurtling into irrelevance. I like the success with the Tegra chips. I see a lot of promotions with video games that advertise “designed for GeForce” or something similar. I also think Project Shield will be a major part of the next paradigm shift in gaming.

NVIDIA does have the potential to move fast once it does get moving. Its 52-week high is $15.49, and I think it could go past that once the market is convinced of NVIDIA’s potential. You do not want to get bogged down if NVIDIA stays flat, there are also some macroeconomic concerns out of the EU. Be cautious with your position sizing, and consider erring on the side of caution even if you like NVIDIA. You might get a chance to have it cheaper.

The article NVIDIA’s Diversified Approach to Growth originally appeared on Fool.com is written by Nihar Patel.

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

Page 2 of 2