Get Ready for a Post-Earnings Surge for NVIDIA

by Justin Fritz
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Graphics chip company, NVIDIA (Nasdaq: NVDA), reported first-quarter earnings last Friday. And although revenue of $924.9 million represents a 4% decline from the same quarter last year, it beat the consensus estimate of $915.7 million.

The company’s outlook for the second quarter – with revenue projected to range from $990 million to $1.05 billion – also topped the average estimate of $976.2 million.

As a result, shares jumped 10%, from $12.42 to $13.68 following the announcement. And although the stock has dropped a bit (currently around $13) as investors are likely taking gains on the run-up, you can bet that shares will continue their upward trajectory in short order.

Here are two reasons why…

Reason #1: Apple Turning to NVIDIA for MacBook Pros

You know Apple’s (Nasdaq: AAPL) retina display that has people so enamored with the iPhone 4 and new iPad? Well, according to ABC News’ sources, it looks like the company’s equipping its MacBook Pro laptops with the ultra-high resolution screen, as well. And given the preliminary success of the new iPad, you can bet that consumers will flock to the new MacBook Pro once it launches (likely this summer).

ABC News’ sources also say that Apple is ditching Advanced Micro Devices (NYSE: AMD) and going with NVIDIA for the MacBook Pro’s graphics processing unit (GPU). 9to5 Mac and The Verge have confirmed this, too.

That’s great news for NVIDIA. As long as it proves it can deliver powerful enough graphics that take advantage of the retina display, it could become Apple’s standard GPU supplier for MacBooks down the road.

Reason #2: Creating a New Standard in Gaming

At NVIDIA’s GPU Technology Conference in San Jose yesterday, the company unveiled a slew of new innovations in graphics processing. The most important development from the event, however, is the company’s new system for cloud-gaming operators, the GeForce GRID.

Now, technology already exists for consumers to play video games straight from the internet. But thanks to server lag, the experience is never as good as playing games directly from a console or installed on a PC. Like NVIDIA says, “First-generation cloud gaming platforms suffer from long latency or lag [and] low-quality graphics.”

The GeForce GRID solves this issue, allowing users to stream top-quality games from cloud operators while avoiding server latency. Meaning it’s making cloud-based gaming so responsive that it feels like you’re playing on a console in your living room. But since it doesn’t require the actual hardware, you can play these high-quality games on anything that has a data connection. And the company hopes that it will eventually “make game streaming as common as renting a movie online.”

This could turn the gaming industry on its head, considering that console makers like Sony (NYSE: SNE) and Microsoft (Nasdaq: MSFT) depend on consumers remaining loyal to their system to build revenue. And we go along with it, not because it makes sense, but because it’s just what we’re used to. Like David Perry, CEO of gaming company, Gaikai, said at the conference, “Can you imagine making a movie and it only working on one kind of television? That would be crazy, but we put up with it.”

But remove that barrier (without sacrificing quality) and it could permanently change the current gaming ecosystem for good. The shift could happen sooner than you think, too, considering several gaming companies are already gearing up to release titles on NVIDIA’s platform. Like Capcom, Gaikai, Epic Games, THQ, Ubitus and Playcast.

Bottom line: With its reported inclusion in Apple’s upcoming MacBook Pros and potential to revolutionize the gaming industry as we know it, the recent surge in NVIDIA’s share price should be just the beginning.

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