NVIDIA’s strong financials
With $11 billion in market capitalization, NVIDIA (NVDA) has strong financials. It generates revenue by selling its products. It also generates revenue by licensing its technologies. It receives royalties from its patents. NVIDIA generates revenue through three segments—GPU, Tegra, and All Other. The graphics processing unit (or GPU) segment contributes the most revenue.
Cash, debt, and cash flows
In 3Q15, NVIDIA recorded cash and cash equivalents worth $4.24 billion—compared to $4.39 billion in 3Q14. Free cash flow (or FCF) and generally accepted accounting principles (or GAAP) cash flow from operations (or CFO) were $175.9 million and $215.6 million, respectively. For the nine months ending in fiscal year 2015, FCF and CFO were $371.6 million and $462.9 million, respectively. NVIDIA’s long-term debt was $1.38 billion. In 3Q15, the company paid quarterly dividends of $46 million and repurchased 16.8 million shares.
If NVIDIA performs well, it will benefit exchange-traded funds (or ETFs) like the Technology Select Sector SPDR (XLK) and the PowerShares QQQ Trust (QQQ). These ETFs have significant exposure to NVIDIA.
NVIDIA invests higher funds in R&D—compared to its peers
In 2014, NVIDIA invested ~32% of its revenue in research and development (or R&D). The semiconductor industry is cyclical. It forces its players to focus on cost efficiency. It’s easy for companies to resort to reducing R&D. This allows them to achieve cost efficiency.
AMD (AMD) is doing the same because it’s undergoing a restructuring phase. AMD invests 22%–24% of its revenue in R&D. Intel (INTC) invests 20%–21% of its revenue in R&D. The above chart shows the R&D expenditure of various players in the semiconductor industry.
To learn more about AMD’s 3Q14 earnings review, please read “Why AMD’s 3Q14 earnings missed expectations.”