Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why NVIDIA Corporation (NVDA) Has a Chip on Its Shoulder

Although corporate makeovers are frequent on Wall Street, they tend to attract quite a bit of skepticism. International Business Machines Corp. (NYSE:IBM) comes to mind. Despite the company’s solid management team, Big Blue had a hard time convincing the Street that it could turn into service-oriented enterprise. Very few believed IBM would be successful until it was. NVIDIA Corporation (NASDAQ:NVDA), which is known for its high-end PC graphics chips, is now fighting this same battle. PCs (of course) are dying and the Street believes NVIDIA is too far behind the likes of QUALCOMM, Inc. (NASDAQ:QCOM) in mobile devices to mount a recovery. But NVIDIA’s efforts suggest otherwise. And if investors continue to buy into the noise, they’ll be kicking themselves for quarters to come.

NVIDIA Corporation (NASDAQ:NVDA)Although the shares have yet to show a discernible uptrend, this company is releasing products and positioning itself to outperform. In fact, after a dominant Q4 performance, during which net income jumped 36%, a case can be made that it already has. The company reported a profit of $174 million, or $0.28 per share, smashing the profit of $116 million in the year-ago quarter. Non-GAAP EPS arrived at $0.35 per share when excluding items — enough to beat Street estimates of $0.24 per share.

Revenue surged 16% to $1.11 billion, or 8% higher than the company’s prior guidance of $1.02 billion. However, operating expenses grew 9.3%. Ordinarily this would be a concern. Then again, net income grew 50% year over year. Even on a non-GAAP basis it advanced 36%. So it’s hard to find fault in a slight uptick in expenses. Plus, this is a company that is fighting to make inroads in new mobile markets, while at the same time, trying to preserve its legacy GPU business. These efforts are going to cost money. To that end, it’s been working.

Revenue from graphics processing units, or GPUs, advanced 2% year over year, while GPU revenue excluding chipsets soared 8%. Gross margin widened 1.5% to 52.9%. Clearly, the management team knows what it is doing. It’s disappointing that the Street still won’t buy in. But I suppose the company’s soft Q1 guidance had a bit to do with that. But it’s not as if rivals — or much of the tech sector, really — has been blinding the Street with shiny outlooks.

Nevertheless, this is a company that is trying to reverse pessimism. In-line guidance is seldom enough. NVIDIA projects first-quarter revenue to arrive at roughly $940 million, below Street estimates of $1.07 billion. Karen Burns, the company’s interim CFO, seems to be bracing for a much softer quarter that analysts would have liked. NVIDIA said GPU sales will be down in Q1. But I don’t think this is some shocking revelation. What’s shocking was the Street’s reaction, since this is the same guidance that’s been provided by Intel Corporation (NASDAQ:INTC) and Advanced Micro Devices, Inc. (NYSE:AMD).

However, this should not be mistaken for a timid company or one that is unsure of where it’s going. Pessimism or not, NVIDIA CEO Jen-Hsun Huang said, “My expectation is that we’ll gain market share this year or we’ll continue to gain market share this year.” If that doesn’t get your blood going, I don’t know what will. Although Huang was speaking to analysts and those that still doubt his company’s transition efforts, he was also making a declaration to Qualcomm, which just issued its typical “beat-and-raise” quarter.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.