NVIDIA 4Q & FY numbers - Introduction to NVIDIA

NVIDIA is a company that has managed to explode onto the scene with the advent of the PC era. When I say "gaming" to you, you think of a nerd eating pizza, drinking energy drinks and staying up all night engaging with friends and foes alike online. WRONG. Computer gaming is a 100 billion Dollar industry, NVIDIA's GeForce is the largest gaming chip on the planet, with over 200 million users. It is another form of entertainment, gaming. TenCent own the single largest game on the planet, Riot Games League of Legends is around 22-23 percent of the online gaming industry. It is an alternative and fast growing form of entertainment that appeals to many young people.

NVIDIA is not solely about gaming, there are multiple and growing applications for their chips, we are superficially talking about autonomous driving as a great growth area. Obviously if you are installing a computer system on driverless (or autonomous) motor vehicles, then you must have the most powerful chips. NVIDIA have partnered with Audi, as well as Mercedes Benz on artificial intelligence chips in vehicles, Bosch, the worlds largest automotive supplier are also in deep in with NVIDIA.

This is all in an attempt to make sure that the roads are safer places. If the vehicles can react at lightning speed and the AI can get better as a result of processing speeds, we will all be safer. The company is also working with HERE and ZENRIN on making solutions, the whole idea is that all the vehicles learn from the network. i.e. if I drive past a point in the road that has been changed (a rockfall), it will immediately tell the car around the corner and so on. A reminder, the transportation industry is a ten trillion Dollar business. And then AI manufacturing, the kind that Musk is yearning for. We spoke about FANUC the other day, the biggest in the manufacturing of industrial machines, they are a client of NVIDIA.

Another area of growth for NVIDIA is in data centers, clients include all of the web services businesses, Alibaba, Amazon, Google Cloud, Microsoft Azure and IBM Cloud, all the majors. And something called "gaming everywhere", where you can rent a chip via a great internet connection. As the chips evolve so quickly, you may want this option. And then, virtual reality (VR), at the moment the graphics are "not good" in VR, NVIDIA are trying to change that. They are working hard on trying to cure cancer, having teamed up with several cancer research partners, using artificial intelligence.

Forget all of that, ok, what about the stock? We can tell that the future is bright and there are plenty of opportunities. Revenues for the last year clocked 6.91 billion Dollars, up 38 percent from the prior financial period. Gross margins expanded by 270 basis points to 58.8 percent. Net income grew 171 percent to 1.666 billion Dollars, whilst diluted earnings per share clocked 2.57 Dollars, up 138 percent from the prior year. Astonishing. The expectations for Q1 are revenues of 1.9 billion Dollars, and margins are expected to expand to as much as 59.7 percent.

The stock has moved sharply higher, and rightfully so. At 120 USD a share now, the stock trades on 47 times earnings. The thing is, if the expectations are for the company to earn around 3.50-3.70 Dollars next year, at the midpoint the stock trades forward on 32 times. Growing at that rate of knots, I suspect that the stock certainly has more legs. It looks expensive, it isn't really. Whilst you can't own everything, all of the time, this is certainly an interesting opportunity at many different levels. In the fast moving world of chips, you definitely have to pay attention. I suspect that there is plenty of room for multiple entrants in the internet of things, at the moment NVIDIA seem to be head and shoulders above their peers. We are a buy rated on this stock.