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Can NVIDIA Cash in on Its Long-Term Growth Opportunities?

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May. 24 2016, Updated 3:06 p.m. ET

NVIDIA’s headwinds and investment opportunities

In the previous part of the series, we saw that NVIDIA (NVDA) reported revenue growth in all four growth markets and is investing in revolutionary technology to tap the emerging trends of virtual reality, deep learning, and autonomous cars. However, the clock is ticking for its licensing revenue. The company failed to secure royalty fees from Samsung (SSNLF) and Qualcomm (QCOM) in its final settlement over a patent lawsuit.

The company is well-placed to withstand these short-term headwinds and invest in long-term growth.

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Cash flows

In fiscal 1Q17, NVIDIA earned $309 million in cash from operating activities, lower than the $510 million it earned in fiscal 4Q16. The $200 million difference is a result of a $264 million annual licensing fee received from Intel (INTC) in fiscal 4Q16.

NVIDIA spent $55 million in capital expenditure and $62 million in dividend payments in fiscal 1Q17. It also declared a dividend of $0.12 per share that will be payable on June 20, 2016.

The company aims to return $1 billion to its shareholders in the form of dividends and share buybacks in fiscal 2017.

Cash position

As of May 1, 2016, the company’s cash reserves stood at $4.8 billion compared to its long-term debt of $447 million. Although the company’s cash reserves have fallen from the fiscal 4Q16 balance of $5 billion, it has sufficient cash to invest in long-term growth and withstand short-term headwinds.

Even in the short term, the company expects to post strong growth driven by the launch of its revolutionary Pascal architecture. In the coming part of the series, we’ll look at the company’s guidance for fiscal 2Q17.

The iShares Core S&P 500 ETF (IVV) has exposure to large-capitalization stocks traded on the S&P 500 Index. It has 0.11% exposure in NVDA.

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