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Investment Overview for nVIDIA (NASDAQ:NVDA)
Below are key drivers of Nvidia's value that present opportunities for upside or downside to the current Trefis price estimate for Nvidia:
- Faster Than Expected Growth In Automotive & Shield Tegra Processors: We currently forecast Nvidia's Tegra revenue
to increase from $559 million in 2015 to $2.3 billion by the end of the Trefis forecast period. While mobile computing has been a key focus area and the largest segment for Nvidia’s Tegra business in the last few years, the company claims that automotive and SHIELD (Nvidia’s gaming device) now represent the vast majority of its Tegra revenue. Nvidia has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth. In the last few quarters, Nvidia has significantly expanded its Shield lineup, which includes the Shield Android handheld console, the Shield tablet, and an Android TV console. Given its strong graphics and processing capabilities, the company is able to deliver a compact powerful and optimized system to eager gamers. Given the above factors, it is possible that we are currently underestimating the growth potential for Tegra processors. If Nvidia is able to increase its Tegra revenue base to over $4 billion and manages to improve EBITDA margins to 40% (higher revenue contribution from automotive could significantly improve margins), our valuation for the company will increase by approximately 20%.
- Continuous Increase In Nvidia’s Discrete Graphics Market Share: We currently forecast Nvidia’s discrete notebook and desktop GPU market share to marginally decline over our review period, as AMD looks to re-gain its lost market share with some new GPU designs. However, in the last few quarters, Nvidia has managed to extend its lead in the GPU market over AMD. Keeping in mind the higher level of investment, for a narrower range of products compared to AMD, Nvidia could manage to further extend its lead in the discrete GPU market. If Nvidia’s market share in the discrete GPU market reaches 98% (in both notebooks and desktops), our valuation for the company will increase by over 10%.
For additional details, select a driver above or select a division from the interactive Trefis split for Nvidia at the top of the page.
Nvidia designs and develops Graphics Processing Units (GPUs), which are high performance processors that generate realistic and interactive graphics on PCs. A computer's Central Processing Unit (CPU) off-loads the burden of graphics processing to GPUs. In this way, a dedicated GPU and CPU work in tandem to increase the overall speed and performance of a system. The GPU market is typically segmented into discrete and integrated GPUs. Integrated GPUs, which were once found in the majority of PCs, have been replaced by Intel and AMD's APUs. However, discrete GPUs are preferred by customers such as gamers or design professionals for high performance and 3D graphics. Within discrete GPUs, high-end discrete GPUs form the professional graphics cards market in which Nvidia has a significant market share. Nvidia sells its products directly to PC manufacturers, such as Dell, HP, Toshiba, and Sony. In addition, the company also sells some of its high-end GPUs directly to consumers through retailers such as Best Buy.
Nvidia also earns revenue from products based on Tegra SOC and modem processor technologies, which includes Tegra for automotive computers, including infotainment and navigation systems; and gaming devices, including Project SHIELD.
While mobile computing has been a key focus area and the largest segment for Nvidia’s Tegra business in the last few years, the company claims that automotive and SHIELD (Nvidia’s gaming device) now represent the vast majority of its Tegra revenue. Nvidia expects the two segments to be the biggest growth drivers for its Tegra division in fiscal 2016, as it winds down its mobile business.
Graphics Processing Units (GPUs) are the major sources of revenue for the company. GPUs are used by gamers or design professionals for high performance and 3D graphics. Nvidia also earns revenue from products based on Tegra SOC and modem processor technologies, which includes Tegra for automotive computers, including infotainment and navigation systems; and gaming devices, including Project SHIELD.
Increasing Adoption of Deep Learning Across Multiple Industries to Drive Nvidia's Data Center Growth
GPU-accelerated data centers are expanding in both High Performance Computing (HPC) and the cloud, driven by the growth of deep learning and Big Data. GPU’s have become the accelerator of choice for hyper scale data centers due to their superior programmability, competitive performance and power efficiency. The launch of VR can lead to potential growth in the enterprise segment, across multiple industries. Nvidia powers IBM lesson and Facebook’s big source server form Artificial Intelligence (AI). It is present in AI platforms at hyperscale giants such as Microsoft, Amazon, Alibaba, and Baidu for both training and real time influence. Nvidia is engaged with nearly 3,500 companies and organization in the development of the deep learning technology.
Expansion in Gaming
The gaming ecosystem and the gaming industry is approximately $100 billion large. Growth in gaming is expected to be fueled by the anticipation of new blockbuster games, the rise of eSports, the emergence of new technologies like virtual reality (VR) and Direct X, and the expansion in developing countries. Nvidia’s gaming platform has been growing at a >25% rate for the last two years. Since Nvidia has not fully penetrated the market, it believes there is ample scope for growth.
Expansion of Advanced Driver Assistance Systems (ADAS) & Self-Driving Car Technologies To Drive Growth in the Automotive Segment
Specialty Analytics expects the market for Advanced Driver Assistance Systems to be worth around $15 billion by 2016, with a CAGR of 23%.(Link)The automotive segment is the fastest growing sub-segment of Nvidia’s Tegra business and offers higher gross margins (compared to devices). The company has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth. The company’s automotive platforms remain on a sharp upward trajectory. Nvidia has shipped almost 5-6 million devices for cars (with its Advanced Driver Assistance Systems) and has an additional 20-25 million such devices to ship in its pipeline. In addition to its infotainment cockpit business, Nvidia is working with over 80 companies that are developing self driving car technologies, using NVIDIA DRIVE PX. These include car manufacturers, Tier 1 OEMs, start-ups and research institutions.
Growth in The Internet-of-Things (IoT) Market
Wearable devices, clothing and accessories incorporating computer and advanced electronic technologies, is a subset of the IoT market and is considered to be the next big wave in computing. Juniper Research estimates the wearable computing device shipments to increase from 15 million units in 2013 to 150 million units by 2018. ABI Research forecast the figure to cross 450 million units during the same period. (Link) Gartner estimates the IoT market to grow almost 30 times, from an installed base of 0.9 billion in 2009 to 26 billion by 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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