Over the past month, shares of Nvidia (NVDA) are up nearly 14%, primarily thanks to the company’s upbeat second-quarter fiscal 2016 earnings report on Aug. 6, which sent shares soaring nearly 10% in the days that followed.
However, Nvidia stock has slowly declined from that 52-week high of $23.95.
But, unlike Intel and AMD — whose performance has been plagued by the worldwide decrease in PC sales — Nvidia has increased its market share in the GPU market by more than 5%, and now has a 4-to-1 lead over AMD.
Further, this week’s announcement that V-Nova, a London-based provider of advanced commercial video and image processing solutions, has ported its industry-leading Perseus technology to run on Nvidia GPUs is a huge win for NVDA:
“This provides a quantum leap in real-time video compression efficiency across a number of professional and consumer devices such as encoders, transcoders, set-top boxes and connected devices.”
Shares of Nvidia stock jumped more than 4% after V-Nova’s announcement.
The question, then, is whether Nvidia can keep its 4-to-1 lead over AMD, and what it would take to maintain NVDA stock’s upward trend. Shares of NVDA are up more than 14% over the past year, and current prices are approaching levels not seen since early 2011. Will Nvidia continue its run up, or are recent gains merely the Street’s excitable reaction to news that may ultimately prove irrelevant?
Making the Case for Nvidia Stock
Despite weakening demand for consumer PCs, Nvidia continues to dominate the graphics chip market. While competitors posted uninspiring earnings, NVDA’s revenue increased 5% in its second quarter, beating analyst expectations by more than $140 million. And while NVDA’s GAAP earnings disappointed analysts with 5 cents to their 10 cents per share, Nvidia’s earnings jumped 13% to 34 cents per share on a non-GAAP basis.
Management also reported that GPU sales, which comprise more than 80% of the company’s top line, increased by 9% year over year thanks to a 51% increase in sales of the company’s higher-end GeForce video cards for PC gaming. So, while the number of PCs being sold has decreased, purchases of Nvidia’s more expensive GPUs have risen due to the increasingly complex demands of PC-based games such as Assassin’s Creed, Metal Gear Solid and Call of Duty.
Additionally, the recent release of the Nvidia Shield — an Android-based TV and gaming system — has allowed NVDA to enter an entirely new market catering to the younger generation of cord-cutters, a still-budding market that has been an intense battleground for tech behemoths such as Google (GOOGL, GOOG), Apple (AAPL), and Amazon (AMZN).
The Shield device offers streaming media via the Internet, as well as an increasing number of popular game titles for the casual gamer. Compared to the Roku, Chromecast, Apple TV and Amazon Fire TV, the Shield looks to be a worthy competitor with robust features that could further disrupt the already chaotic market.
Expanding on its already impressive array of video-related capabilities and offerings, Nvidia also recently announced an upgrade to its GeForce Experience program:
“An upcoming version introduces several new features mimicking those found on PS4 and Xbox One. Most noteworthy among these is GameStream Co-Op.”
Simply put, this feature provides PC gamers with the capability to virtually invite another person to watch them play games, and even take over the controls to share in the experience. Gamers initiating the co-op experience must be equipped with a higher-end Nvidia GPU.
Bottom Line on Nvidia Stock
Nvidia, unlike many chipmaker competitors, has been able to increase sales and revenue in recent quarters, despite the slump in global PC sales figures.
The introduction of a new Android TV device, which appears to have the goods to capitalize on an casual gamers (an obvious sector of the cord-cutting market) where Amazon’s Fire TV failed, should bring additional revenue and attention to Nvidia’s already booming business.
Plus, with increased interest in screen-sharing and co-op gaming for PCs, the NVDA GameStream update has the potential to further solidify Nvidia’s market-leading position. Nvidia stock is close to it’s five-year high, and with the continuing stream of cutting-edge product releases and feature upgrades, NVDA is a clear long-term winner in the PC chipmaker and graphics processing arenas.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.