Nvidia’s Tegra Processors Will Likely See Strong Growth In The Near Term Led By Gaming Modules And Automotive

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Nvidia’s (NASDAQ:NVDA) Tegra Processors segment accounts for around 15% of the company’s total revenues, and 10% of the total EBITDA. However, we forecast the contribution to increase in the coming years. The segment revenues have seen strong growth in the recent past led by both Automotive and its SOC (system-on-a-chip) modules for Nintendo Switch. We expect this trend to continue in the near term, and drive segment revenues. We have created an interactive dashboard analysis ~ What Is The Outlook For Nvidia’s Tegra Processors ~ on the segment’s expected performance in fiscal 2019 and 2020. You can adjust the segment revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate. Below we discuss the Tegra Processor segment in detail. 

Expect Strong Growth In Tegra Processor Segment

Tegra Processors segment revenues have increased from $550 million in fiscal 2016 to $1.5 billion in fiscal 2018. We forecast the growth to be in mid 20s (percent) in the near term, and in low teens thereafter. This can primarily be attributed to growth in its SOC modules for consoles, such as Nintendo Switch. Note that Nintendo Switch has been a very successful console, and more than 20 million units have been sold since its launch last year. Nintendo Switch sales are expected to ramp up and reach over 47 million units by March 2019. The console uses Nvidia’s SOC modules, and such growth in the demand for console will bode well for Nvidia. In fact, the segment revenues are up 37% in the first half of fiscal 2019, led by an 80% jump in revenues from SOC modules.

Apart from SOC modules, the company is also seeing growth on the Automotive side, led by its AI (artificial intelligence) platforms, such as DRIVE PX, which are doing well in the market. Nvidia has been working on building its automotive computing platform for over a decade, and is in a strong position to leverage this growth. However, Tesla recently decided to move away from Nvidia chips to its in-house ASIC chip, which is currently being tested, and is expected to be used in the new Tesla cars. On the other hand, Nvidia recently announced that Daimler and Bosch has selected DRIVE Pegasus as the AI for their level 4 and 5 autonomous fleets. We believe that the company’s automotive platforms remain on a sharp upward trajectory with AI to be introduced in several vehicle lineups.

Looking at the segment EBITDA margins, they turned positive in fiscal 2017, and saw a sharp jump to 22% in fiscal 2018. We forecast the margins to grow toward the 30% mark by the end of our forecast period. This can primarily be attributed to the growth in automotive business.  The company expects automotive to be the fastest growing Tegra division, and also offers higher margins.

 

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