Nvidia Overview

March 3, 2005 - Copyright by Morris Rosenthal - - contact info

Losing Money

Trading Notes

  • DELL
  • HPQ (Hewlett Packard)
  • INTC (Intel)
  • AMD (Advanced Micro Devices)
  • MU (Micron)
  • NVDA (Nvidia)
  • ATYT (ATI Technologies)
  • WDC (Western Digital)
  • IOM (Iomega)

Questions? Comments?

Copyright 2005 by Morris Rosenthal

All Rights Reserved

Nvidia Overview - Notes on trading NVDA stock for investing in my SEP

Nvdia is one of the two major makers of graphics chipsets for PC video adapters and video game systems.Microsoft's X-box brought in 15% of Nvidia revenues in FY 2004 and over 20% in FY 2003. Nvidia is now collaborating with Sony on PlayStation graphics development. Nvidia has a funky fiscal year, and will probably file their next annual report around the end of this month. Nvidia Graphics Processing Units (GPUs) are compatible with Microsoft DirectX 9. Nvidia is strictly a "fabless" operation, they design graphics processors but they don't manufacture them. Their semiconductors are produced by the big three of the contract foundry world: IBM, UMC ( United Microelectronics Corp) and TSMC (Taiwan Semiconductor Manufacturing Corp). Product assembly is also sub-contracted. R&D expenditure in FY 2005 (as reported in Q4 2005 8K) was $335 million. Growth of R&D expenditures slowed to less than 25% in 2003/2004 after growing over 50% in 2002/2003, and total R&D investment in FY 2004 was approximately $270 million. FY 2005 revenue was $2.0 billion, with net income of $100 million. FY 2004 revenue at $1.8 billion fell almost $90 million short of 2003, and net income was down for the second straight year to a 4 year low at $74 million in FY 2004.

NVDA shares currently trade at a P/E of around 40, almost twice as high as shares of their main competitor, ATI Technologies.The two companies market caps are nearly the same in the mid $4 billion range, but NVDA shares trade at double the daily volume of ATYT (the ATI ADR). NVDA shares are trading at a little less than half their bubble valuation of over $65, and the company has returned around 500% to IPO investors, compared to less than 100% for money invested in ATI shares at the same time. Future growth in Nvidia depends on their continued success in gaming hardware, both for video games and PC's. I don't see the need for graphics power in cellphones, even though Nvidia sees it as a market. I lost money betting on Nvidia's rival, but I can't picture myself buying NVDA shares at the current valuation without some macro change in the hardware sector.

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