What are the key drivers for NVIDIA’s stock?

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Tegra processors’ key drivers

NVIDIA (NVDA) expects its Tegra processor business to generate growth mainly from three areas:

  1. mobile devices
  2. automotive
  3. gaming systems

Mobile and smartphone devices are the largest sub segment. Tegra’s growing adoption in automotive infotainment systems and gaming space indicates that it has significant growth opportunities in the future. All of Tegra processors’ key drivers promise rapid growth. As a result, NVIDIA should benefit from Tegra processors.

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Automotive sector is expected to provide big push

Currently, there are more than six million cars using NVIDIA’s Tegra processors. The company expects that another 25 million Tegra processors will be integrated into vehicles in the next five years. In fiscal year 2014, the company earned design wins from prestigious automobile companies—Audi, Volkswagen (VOW), BMW, and Honda (HMC).

Currently, NVIDIA has a $2 billion product pipeline that needs to be shipped in the near future. Major design wins in the automobile market indicate strong growth for the company’s Tegra mobile processor business. Management expects NVIDIA’s auto sales to double with each passing year. Auto sales will eventually contribute $1 billion annually.

The following chart shows NVIDIA’s total addressable market (or TAM) in 2014. Tegra is the biggest potential revenue source.

NVIDIA is focused on enterprise computing

According to Digi-Capital, an investment bank, Asia and Europe are expected to form 87% of the global mobile and online games revenue by 2015. NVIDIA generates most of its revenues from China. This, combined with its dominance in the PC market and its take on cloud gaming through GRID, generates optimism about NVIDIA. Its GeForce graphics processing units (or GPUs) already have a place in IBM (IBM), Dell, and HP (HPQ) servers.

Currently, NVIDIA is conducting more than 1,000 GRID customer trials. Although, it’s in the early stages of rolling out its GRID cloud-computing platform, NVIDIA received customer interest. As a result, NVIDIA is set to target the enterprise computing market with its GPUs and GRID.

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