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Strategies & Market Trends : Value Investing

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From: Moj Jalali	1/15/2012 3:07:02 PM
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All, NVIDIA is a company that has good investment potential IMO. Would love to get peoples feedback on this. This is what I have found out about the company: Symbol: NVDA Market Cap: 8.38 P/E: 13.12 (based on LTM earnings) According to their most recent 10-q filings operating income for 3 months ending Sep 30, 2011 increased by approximately 90% (197 v 104) year on year. To make operating income more comparable to 2010 I made an adjustment that excludes the impact of the new 6 year licensing agreement with Intel. The adjusted increase in operating income works out to about 17.6% - still a pretty good result. The agreement which was entered into at the beginning of 2011 will lead to a net inflow of $1.5b dollars over a 6 year period ending 2016. Using a very conservative 15% discount rate I have calculated the present values of the remaining cash flows from the agreement at about $800m. Logically, NVDAs equity value should have increased by at least this amount, However, at $13.7/share its market cap is about $8.4b a mere 2.5% above where it was in 2010 before the deal. Discounted Acquisitions and Future Growth It seems also that the market is discounting its acquisition of Icera which the company bought mid 2011 for $352m. As they look to gain further business from the smartphone and tablet market this acquisition will allow them to combine their application processors with Icera's baseband processors. Revenues related to its new Tegra chip has increase from around $129m to $480m. One of this reasons for this was the first mover advantage it gained from being the first company to introduce mobile dual core processors that aimed an increased energy efficiency while providing faster speeds. Its tegra-3 chip, released a couple of months ago is more powerful than Tegra-2, more energy efficient even while packing double the number of cores (4) and increased clock speed by 40%.

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