Should NVIDIA Investors Worry About Project Shield?

Ashley is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The moment NVIDIA (NASDAQ: NVDA) announced its decision to launch a portable gaming device; it was met with a mixed response of excitement, curiosity and skepticism. While this sort of reaction is normal, NVIDIA did take a tumble during the days of its announcement. NVIDIA is a giant when it comes to delivering hardware to gamers all over the world and now it’s starting to power mobile devices (with its Tegra chipset series ) to support heavy performance apps. Till now, NVIDIA has taken all the right steps, but with Project Shield, the company is shifting its positioning from a backend supplier to the forefront of gaming. What now? Well, until the product actually releases, speculate is all that we can do.

Why investors should be worried about NVIDIA’s new step forward

Let’s face it, when it comes to gaming, three things pop up into our mind – Xbox 360, Playstation and Wii. Nowhere do handheld gaming device names like Playstation Vita, Nintendo 3DSXL come into mind. And this is what’s really worrying about NVIDIA's foray into handheld gaming – is there any kind of potential to be exploited in the portable gaming market?

Devices like the Apple iPhone, iPod touch and your Android tablets and phones are also competing in this market, and gaming is not their main focus too. So is portable gaming a market that companies should focus on? Sony’s (NYSE: SNE) gaming division's primary revenue comes from its Playstation 3 console sales and while PS Vita is a great product, it’s still yet to set the cash registers ringing. So in a market that’s yet to gain traction and in the company of giants like Sony, Apple, and Samsung, does NVIDIA’s Gameshield project stand a chance? Or let’s put it this way – do NVIDIA’s investors need to be concerned?

Why investors should not be worried 

One of the main focus points of NVIDIA's Project Shield is the Android platform its running in and that’s a great plus point for gamers. Android games are getting better and better. Since we’re talking about the Android platform, there’s going to be a plethora of games for gamers to choose. This is where NVIDIA can trump Sony, the amount of games it can offer and with Android games being eagerly developed by independent studios, the Project Shield will never run out of games (unlike Nintendo and the previous PSP versions). Another huge feature Project Shield offers is the ability to stream games from a NVIDIA GeForce GTX graphic processor PC, meaning you can play your PC games via your Wi-Fi network. So, Android games plus the ability to stream PC games into Project Shield … Yep, there’s definitely a lot of potential there.

Bottom line …

Well, NVIDIA has surely got a product that can create serious waves in the market. Portable gaming has never taken off and unless gamers get a device that offers them plenty of affordable games, they’re just going to stick to their gaming consoles. Sony’s facing this exact problem and it looks like NVIDIA has a great opportunity to pounce on. Now let’s stop speculating for a while and get to the most fundamental questions that it poses – Will a gamer buy the NVIDIA Project Shield?

Since I’m a gamer, I’ll give this question a shot – For me, the platform doesn’t matter. If I’m concerned about Android or IOS apps, then I’ll just go for a Samsung Tab or an Apple iPod. But what I’m looking for is a portable gaming device that offers me great (and seriously hardcore games) with an affordable price. While Android games are affordable, from a gaming point of view, Sony’s PS Vita games just seriously blows away whatever Android has to offer. I mean they’re just downright gorgeous and most of the time, it looks almost like its console counterparts too. The only problem is its price and the price of its games. Sony PS Vita’s price is actually higher than a Playstation Vita and its games are equally expensive. So, why bother with a PS Vita when you can buy a more powerful console that’s already got a lot of games to choose from.

Now, if NVIDIA doesn’t get me thinking like this and just provides me some great games that are priced reasonably, then I think we have a winner.

So, Foolishly speaking ...

NVIDIA shares fell by 3% when Project Shield was announced, but with its earnings report set for Feb. 14, investors may expect better times ahead. First, NVIDIA's stock seems cheap with a trailing PE of 15, so if you're looking to buy, now could be the right time. NVIDIA's revenue and net income have seen substantial growth over the past year and this trend should continue in the coming year. NVIDIA's Tegra chipsets have gained considerable traction in handheld products and the future iterations of Tegra should continue to gain momentum. Project Shield may have its fair share of doubters, but since it's targeting an area (portable gaming) that's yet to create waves while powered by the ubiquitous Android, this can be the first device that woos people other than gamers to buy a dedicated portable gaming device.

Sony's done a good job in creating a portable gaming device, but it still hasn't lived up to its expectations due to its limited selection of games and its high price. iPads and tablets are capable of running Android games and none have the capability of streaming a PC game. Yep, it ticks all my boxes for an awesome device and it should give NVIDIA the success it seeks in hardware gaming. They just have to nail the price point down to an affordable figure.

ajs360 has no position in any stocks mentioned. The Motley Fool recommends NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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