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What margins, financials say about Nvidia’s growth prospects

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Dec. 4 2020, Updated 10:53 a.m. ET

Operating performance and margins

As mentioned in an earlier part of this series, Nvidia (NVDA) generates the majority of its revenues from GPUs (or graphics processing units), followed by Tegra processors. Nvidia’s GPU business grew 13% in 4Q15 and 11% in fiscal 2015. In 4Q14, Tegra sales fell by 15% on a quarter-over-quarter basis and grew by 45% year-over-year.

In 4Q15, Nvidia’s GAAP (or generally accepted accounting principles) gross margin stood at 55.9 %, up 70 bps (or basis points) from 54.9% in 3Q15. Non-GAAP gross margin was 56.2%, also up 70 bps as compared to the previous quarter.

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PC gaming and accelerated computing played strong roles in the expansion of margins, but Tegra processors partially offset this. High-margin offerings like GeForce GPUs, GRID, and Tesla did well, but Tegra’s performance was disappointing.

Consider investing in the Technology Select Sector SPDR (XLK), the VanEck Vectors Semiconductor ETF (SMH), and the PowerShares QQQ Trust (QQQ) to gain exposure to Nvidia. The company makes up about 0.27% of XLK, roughly 1.94% of SMH, and approximately 0.22% of QQQ.

Nvidia invests more in R&D compared to its peers

In fiscal 2015, Nvidia invested about 29% of its revenues on R&D (or research and development). The company used 32% of its revenue spend for this purpose in fiscal 2014. Nvidia’s peers Advanced Micro Devices (AMD) and Intel (INTC) invested 22%–24% and 20%–21% of revenues to R&D, respectively. As we will see in a later part of this series, Nvidia had the highest R&D-to-sales ratio among its peers in 2014.

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