Is NVIDIA Corp. (NVDA) Stock Worth Adding to Your Portfolio?

Shares of NVIDIA Corp. (NVDA) have shown double digit growth over the past year.

Some of the optimism related to NVIDIA shares can be attributed to the higher adoption rate of the company’s Tegra processors. Recently, Google selected NVIDIA’s Tegra K1 processor to power its Project Tango tablet development kit, which will help developers build applications featuring 3-D mapping and sensing capabilities. Moreover, Xiaomi, a fast-rising Chinese mobile manufacturer launched a tablet powered by TegraK1 processors.

Moreover, NVIDIA’s success with its Tegra processor continues as Tegra K1 processors are being used by Acer for its Chromebook 13 and Hewlett-Packard (HPQ) for its Chromebook 14. Reportedly, Tegra K1 processors are more energy efficient and offer a longer battery life to Acer Chromebook 13 than other currently available Chromebooks. The energy-efficiency of Tegra K1 is likely to be a competitive differentiator, driving its adoption and giving competing devices from Advanced Micro Devices, Inc. (AMD) and Intel (INTC) a run for their money.

Furthermore, NVIDIA’s focus on GRID platforms can increase GPU adoption in data centers, giving it an advantage against its competitors. NVIDIA GRID is a powerful GPU-based platform that supports corporate virtualized desktops in data centers, cloud gaming services and design software-as-a-service. Recently, NVIDIA and VMware entered into a strategic alliance to run NVIDIA GRID technology on VMware Horizon Desktop-as-a-Service (DaaS) Platform. This will help NVIDIA to enrich its virtualization, automation and cloud-based portfolios. We believe that NVIDIA’s revenues will stand to benefit significantly if the latest GameWorks technologies succeed in meeting user requirements.

Recently, NVIDIA unveiled a test drive program for its GRID technology, which supports graphics-heavy applications via cloud computing.  The company’s GRID “Test Drive’’ will enable customers to easily test GRID-backed VDI (virtual desktop infrastructure) without a pilot. Notably, the new Test Drive program has attracted significant interest, which will help to generate additional demand for its graphics technology.

Moreover, in a recent investor briefing session, NVIDIA shared its plan for future growth and the new devices that it is planning to launch to win more customers. The company claims that it is making strategic moves to expand its GRID for Enterprise Virtualization with approximately 500 million enterprise workers. Management also emphasized that the NVIDIA GRID will now be available on 50 server platforms. We believe that NVIDIA’s GRID enterprise virtual graphics, which improve the visual effects of games, will help in future revenue and margin growth.

Nonetheless, a decline in the PC market is a cause for concern for NVIDIA’s GPU segment. Per the latest IDC report, PC shipments will drop 3.7% in 2014, the third consecutive year of decline. NVIDIA has, however, been able to offset the effects of the slowdown by increasing its focus on the mobile computing space.

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