NVIDIA: Buy, Hold, or Sell?

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

Those long on NVIDIA (NASDAQ: NVDA) had high hopes going into the International Consumer Electronics Show (CES) last month.  What does NVIDIA have new in the pipeline?  What will they unveil during their presentation, were the questions asked?  But as the show unfolded a glazed stare of confusion and bewilderment fell upon the NVIDIA long-ers faces. 

Did they just say they are releasing an open hand held gaming platform?  Tell us this Project SHIELD is a cruel joke.  What about the stronghold Nintendo, Sony, and Microsoft have on the gaming industry?  What about the fact that there are almost no games for Android that requires high speed graphics or high speed processing and moreover there are not likely to be any released in the near future?  Why build high-end games when there is no platform (speaking of Android)?  And why build a high-end platform if there are not any games for it.  Which came first the chicken or the egg? 

With this move NVIDIA is betting the egg came first when everyone knows it is was clearly a chicken.  Has the NVIDIA management team lost focus?  Everyone in the business world seems to know that this was a bad strategic move except for them.  Top that off with Microsoft’s Surface RT being dead on arrival and rumors of Google switching to Qualcomm for mobile processing, leaves the long-ers sick to their stomachs.

But wait, NVIDIA has made some really smart moves in the recent past, like moving into the ultra-high-end computing and supercomputing space with their Tesla Graphic Processing Units (GPUs).  Now this was an astute move, to leverage their existing GPU creation expertise by reworking them slightly to solve complex computing problems outside of the graphical space.  Bravo NVIDIA!  And that move has paid dividends by adding a new customer base and bringing in respectable profits.

Now if the Tesla product line was ingenious then the creation of the Tegra line of mobile processors was brilliant!  Without question this is where the most market growth is going to take place and the management team was thinking way ahead to start R&D on this early.  Tegra 3 met the market in a timely manner landing two big contracts right out the gate (Microsoft and Google) and Tegra 4 is right on time as well.  Tegra 4 is fast and energy efficient, the two key selling points in the mobile market space.  So it looks poised for great success.  So do not count NVIDIA out just yet, they may surprise the market with some stellar profits from Tegra product line. 

While this is certainly not the stock to be in for the short term, it is still a highly compelling long term play.  With NVIDIA trading at $12.34, as of close 2/6/2013, a share and likely to go lower if the Google rumors prove to be true, this may be close to the ideal buying time.  Remember buying low, selling high, is the name of the game. 

If you happen to already hold a significant stake in NVIDIA then I would be inclined to hold at this point, as the stock is not likely to break the $10 range.  With an annual yield of 2.43% you can earn some interest while waiting for the stock to blossom, which it is likely to do within 5 years.


samuelyounge 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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