On Jul 9, 2014, Zacks Investment Research upgraded NVIDIA Corp (NVDA - Analyst Report) to a Zacks Rank #1 (Strong Buy). A strong return of 32.43% over the past one year and a long-term expected earnings growth rate of 11.10%, higher adoption rate of the company’s Tegra processors and a positive estimate revision trend make NVIDIA an attractive investment option.
Why the Upgrade?
NVIDIA has posted an average positive surprise of 38.19% over the last four quarters. Moreover, positive estimate revisions increased the Zacks Consensus Estimate for fiscal 2015 from 91 cents to 92 cents over the last 30 days.
Moreover, a similar positive estimate revision of the same magnitude was witnessed for fiscal 2016. The Zacks Consensus Estimate for fiscal 2016 increased by a penny to $1.02 over the last 30 days.
Some of the optimism related to NVIDIA shares can be attributed to the higher adoption of its Tegra processors. Recently, Google (GOOGL - Analyst Report) selected NVIDIA’s Tegra K1 processor to power its Project Tango tablet development kit, which will help developers build applications featuring 3D mapping and sensing capabilities.
Moreover, Xiaomi, a Chinese mobile manufacturer, launched its tablet powered by Tegra K1 processors. Additionally, NVIDIA’s Tegra 4i chips are expected to compete with QUALCOMM (QCOM - Analyst Report). Tegra 4i is the company’s 4G LTE mobile processor.
We believe NVIDIA’s innovative product pipeline that consists of the recently introduced SHIELD 2 and mobile processor Tegra K1 will boost top-line growth. Moreover, strength in gaming and high-end notebook GPUs is the other catalyst, going forward.
In addition, NVIDIA entered into a strategic alliance with International Business Machines (IBM - Analyst Report) to produce GPU-accelerated editions of the latter’s enterprise software running on its Power technology.
However, the continuous decline in PC sales is a cause of concern for NVIDIA’s GPU segment. Competition from the likes of Intel and QUALCOMM and higher operating expenses remain the headwinds.