More Reasons To Like NVIDIA Corporation (NASDAQ:NVDA) - An Attractively Priced Stock

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NVIDIA Corp is a leader in visual computing technologies used in PCs, workstations, and other devices.

We like NVIDIA Corp for the following reasons:

New products ramping over summer: NVDA’s next-generation GPUs (called Fermi) began to ship recently and are selling out. Optimus, which enhances graphics while saving battery life, is on track for a strong H210, as the product has 70 design wins, with only 11 in production as of Q1’10 conference call, and 50 slated to be launched in time for “back to school” season. Tesla, a GPU computing product, is generating record revenues, and was recently adopted by IBM to power its high performance computing (HPC) line. This is a big achievement for Tesla, and speaks loudly for its potential. Tegra, a processor for mobile web, was also recently launched with the release of Microsoft’s Kin Smartphones. Management expects several design wins in 3G Android Smartphones as well as Tablets in H210.

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Inventory levels remain healthy: Channel inventory is lean, and inventory levels on the company’s balance sheet remain healthy, despite recording an increase in Q110 due to increased supply. Demand is expected to grow into the summer, as a slew of products are expected to be available, so slightly higher-than-normal inventory levels would not be unreasonable. Better yields in 40 nm, as well as a longer testing period for the more complex Fermi chips were the main contributors to the recent increase.

Strong margin expansion: Gross margins in the most recent quarter were up 90 bps q/q to 45.6%, above street expectations of 44.7% due to a stronger mix. Management guided for gross margins to be up higher in Q210 to a range of 46-47%. Mix is trending away from chipsets (maturing market) and moving towards the Tegra, Tesla and Fermi products, each of which has gross margins in the 50-65% range, above the company average. Chipsets are close to 20% of sales and will eventually dwindle away, taking their 35% gross margin with them, further helping the company’s overall profitability.

We believe NVDA’s shares are attractively priced.

Click Here to view an article from VE last week with AFG’s Intrinsic Value Chart illustrating NVDA trading at a discount to its intrinsic value.

As you can see in AFG's Wealth Creation Report for NVDA below, NVDA’s EM levels are highly correlated with their relative market performance. NVDA’s EM levels are expected to significantly increase in the year ahead but its shares have yet to experience a boost in performance relative to the market.

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