Auriga USA LLC upgraded its rating on shares of Nvidia Corp. (NASDAQ: NVDA) to buy from hold and raised its price target to $24 from $19, as it sees potential for strong growth in Tegra, which may more than offset its flattish GPU business.
Our analysis leads us to conclude that Tegra remains at an early phase of growth and could reach $3 billion per year by 2016 by leveraging sharp growth in Android/Windows tablets and also by increasing its market share in mid- to high-end smartphones, said Sandeep Shyamsukha, an analyst at Auriga.
Shyamsukha said that Tegra could reach $3 billion per year by 2016 from an expected $550 million in 2011. Nvidia generated about $100 million from Tegra sales in first quarter of fiscal 2012 driven largely by just two smartphone models as Android tablet sales remain at low levels.
Shyamsukha expects these sales to jump sharply in second half of 2011 and 2012 as Android tablet sales pick up and smartphones increasingly adopt dual and quad core processors to keep up with Apple Inc.'s (AAPL) iPhone. A potential launch of Windows-based tablets and laptops in 2012 could provide more room for upside.
Shyamsukha expects Nvidia's GPU sales to laptops/desktops to remain largely flattish as PC’s face headwinds from tablets and as integrated CPU/GPU solutions encroach on Nvidia's lower end solutions. He expects professional solutions (Tesla/Quadro) to grow at low double-digit rates over many years as multiple key segments remain under-penetrated for these products.
Shyamsukha acknowledges the competitive risks in applications processor/baseband segments, but thinks that Nvidia's strong brand, early lead in dual/quad core processors and graphics edge position it well ahead of other larger competitors like Qualcomm (QCOM) and Texas Instruments (TXN) in tablets/smartphones for significant share gains over many years.
We think that system-on-a-chip (SoC) integration risks in Nvidia's core segments remain low for the next here to four years, as we expect the applications processor/graphics to evolve at a much faster pace than baseband. We view the Icera acquisition positively, as it effectively addresses the longer term threat and also substantially increases TAM for a reasonable price, said Shyamsukha.
The brokerage increased its 2012 pro forma earnings per share estimate for Nvidia to $1.08 on revenue of $4.15 billion from $0.99 on revenue of $4.05 billion, and its 2013 estimate to $1.32 on revenue of $4.62 billion from $1.02 on revenue of $4.26 billion.
Nvidia stock rose 1.33 percent to $19.76 during the pre-market trading on the NASDAQ Stock Market.