Nvidia (NASDAQ:NVDA) and Asus recently announced an Android based tablet that will be powered by Nvidia’s quad-core Tegra 3 chip and will sell for $249.  Tegra 3 is a significant advancement over Tegra 2 and should help Nvidia gain a greater presence in the tablet market dominated by Apple (NASDAQ:AAPL) as well as in the fast-growing smartphone market dominated by Qualcomm (NASDAQ:QCOM). The tablet market alone can present a huge opportunity for Nvidia, especially as Apple’s dominance withers with launch of more tablets from other manufacturers.
Let’s take a look at an optimistic case for Nvidia.
Nvidia has been gaining plenty of market share in Android-based smartphones, and it appears that most tablets apart from Apple’s iPad are likely to be Android-based in the future. Furthermore, Nvidia has been leading the innovation in mobile chips and that should help it grab some share in the tablet market. If over the course of next 6-7 years Apple’s share declines and Nvidia gains as much as 25% share of the tablet market, it could sell as many as 65 million processors a year just for the tablets. We expect the tablet market to grow from about 64 million in 2011 to close to 260 million by the end of our forecast period.
As Tegra 3 chip sells for between $15 and $25, Nvidia could earn as much as $1.3 billion a year by the end of our forecast period just from the tablet market alone.
In such a case, our mobile chip revenue forecast of about $1.9 billion by 2018 will turn out to be very conservative since it includes revenues from smartphones as well, which is another huge market.
The bottom-line is that Nvidia has potential to make it big in mobile computing market that the current stock market is somewhat discounting.
Our price estimate for Nvidia stands at $20.91, implying a premium of about 50% to the market price.Notes: