Tickers in this Article: NVDA, INTC, DELL, HPQ, BRCM, QCOM, ARMH
Give credit to the management at NVIDIA (Nasdaq:NVDA), they have learned from history and understand that graphics processor companies don't last long. Sure, there can be a great ride up for shareholders as the newest "new thing" grabs share, but real franchises in graphics chips are hard to build and harder still to maintain. NVIDIA seems to want to stick around, though, and the company is expanding into a lot of interesting new areas to do so.

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A Reasonable Start to the Fiscal Year
A lot of investors have bought into the "new NVIDIA" story and expectations are high. To that end, the company delivered a solid result this quarter. Revenue was down 4% on a year-on-year basis, but up more than 8% sequentially and above the high end of the analyst range. Within the results, GPU sales rose 4% sequentially (and are more than two-thirds of revenue), while professional solutions (heavy-duty graphics chips and Tesla supercomputing products) fell about 1% and consumer solutions (which includes chips for mobile devices) rose 78%.

Margin performance was also pretty solid. Gross margin improved on both a sequential and year-on-year basis, while operating income was likewise up and margins expanded.

Good as that all may be, institutional investors are obsessed with the future, and NVDA's guidance is likely why the stock was indicated lower in pre-market trading Friday morning. Revenue guidance was alright, but the company did pull back a bit on margins. Operationally it's no big deal, but given the valuation on NVDA shares, it's fairly clear that the expectations are high.


PC Still a Problem Child
Although there is a lot of expectation that the release of new chips from Intel (Nasdaq:INTC) is going to unleash some pent-up growth in PCs, that expectation may prove to be a little too optimistic. Dell (Nasdaq:DELL) and Hewlett-Packard (NYSE:HPQ) seem to be working hard to reduce the importance of PCs to their results and investors have been burned here before. What's more, it is pretty clear that the uptake of tablets from Apple (Nasdaq:AAPL), Samsung, and others is having some impact on the laptop/notebook market.

That matters because NVIDIA still gets about two-thirds of its revenue from the PC chain. Now certainly there's opportunity for NVIDIA to grab more share - both in graphics and processing - but investors are down on PCs and that could be a problem for NVIDIA if this new Intel launch doesn't go as well as hoped.

Building an Interesting Future
To NVIDIA's credit, the company is hardly standing still. The company's Tegra processors have grabbed some business in the mobile sector (from the likes of Dell, LG, and Motorola Mobility (NYSE:MMI)), and the company's supercomputing business is at the very least an interesting option.

Longer term, the company seems committed to getting even more diversified. The acquisition of Icera builds the wireless portfolio and gives the company some ammunition to compete with Broadcom (Nasdaq:BRCM) and Qualcomm (Nasdaq:QCOM) (among others). What's more, the development of CPU chips based on ARM Holdings' (Nasdaq:ARMH) technology should further diversify its revenue options.

The Bottom Line
Expectations are the name of the game for NVIDIA right now. Based on some backward-looking valuation metrics, it may seem ridiculous to think that the shares could be undervalued. Nevertheless, if the company can lever better free-cash-flow performance out of its evolving product portfolio, the shares are not too expensive on a forward cash flow basis. Not cheap enough to buy, mind you, but cheap enough to at least be worth a hold and an occasional look-in from prospective investors.

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