NU | GS Hunter Chang Senior Analyst - Ishaan Madan
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Hunter Chang Ezequiel Linares Ishaan Madan Samuel Kim
Senior Analyst Senior Analyst Junior Analyst Junior Analyst
NU | GS May 2016
S&P 500: NVDA
A secular trend away from CPU (central processing unit) marks the “retirement of Moore’s Law”, and a shift in the
semiconductor industry towards the burgeoning demand for GPU chips (graphics processing unit). Sectors ranging
from AI to sports VR are on the verge of being fully dependent on GPU chips.
NU | GS 2
Agenda
I. Investment Thesis IV. Valuation
II. Industry Overview A. Comparable Company Analysis
A. Market Drivers B. Discounted Cash Flow Analysis
B. Competitors
V. Conclusion
III.Company Overview
A. Company Background
B. Revenue Background
C. Catalysts
D. Risks
NU | GS 3
Investment Thesis
NVIDIA is currently undervalued at $103.47 a share. Our recommendation is to buy and hold
1Yr Price Target: $126.03 for at least 18 months in order for the the market to adjust to reach the $126 price target (20%
upside).
1. Upcoming Partnerships
NVIDIA has recently secured partnerships with Facebook and IBM to make AI available to both
developing businesses and consumers.
1. Apple also recently dropped Qualcomm and is in search of a GPU provider.
2. Competition Struggling 2. AMD’s revenue and market control has been steadily declining for the past 5 years and
released a 7.5% drop in revenue in their May 1st earnings report.
The efficiency of a GPU is unparalleled when compared with market-standard CPU. Secular
3. Secular Market Shift market shift will be recognized by businesses and consumers and realized in the market in the
short term.
NU | GS 4
Industry Overview
Semiconductor Industry - $335.0 Billion
CPUs GPUs
Product Description Product Description
Single-function processing units, implemented in almost Parallel-function processing units, becoming extremely
every top-of-the-line computer and smartphone. Old relevant in virtual reality, artificial intelligence, and
technology- limiting advances in industry. predictive analytics.
Intel - 79.80% Top Players
AMD - 20.20% NVIDIA - 70.5%
AMD - 29.5%
Figures from WCCFTech
NU | GS 5
Market Drivers
NVIDIA
Growth of VR products in both the commercial and sports
industry
GPUs
Increased demand for autonomous vehicles
Major advances in AI and Machine Learning
NU | GS 6
Competitors
Description Market Cap Big Partners
• Founded in 1969
• Specializes in consumer Acer
IBM
computer CPUs and GPUs
• Few entry-level server
$12.52B HP
Samsung
Dell
solutions
• Founded in 1993
• Specializes in GPUs for big VW Group
Google
data processing and AI Facebook
training $62.01B Asus
Cisco
Dell
• Top-notch graphics cards for Tesla
consumer gaming
• Founded in 1985 Samsung HTC
• Specializes in hand-held LG Google
CPUs and GPUs $79.40B Sony Motorola
• No presence in AI or big
data processing Figures from Yahoo Finance
NU | GS 7
Company Background
● NVIDIA specializes in high-power Graphics Processing Units
(GPUs), for both Big Data computation and consumer usage.
● It stretches across multiple markets, including supercomputing
(NVIDIA Tesla), GPGPU system infrastructure management, top-
notch graphics cards for consumer PCs, and artificial adaptive
analytics, including machine learning and autonomous vehicles.
NVIDIA’s founder and CEO, Jensen Huang, has
led the company to $6.91 billion in 24 years of
operation.
NVIDIA’s CFO, Colette Kress, has 13 years of CFO
experience at Microsoft, along with 3 years of CFO
experience at Cisco, before coming to NVIDIA in
2013.
Figures from the NASDAQ and NVIDIA
NU | GS 8
Revenue Breakdown
Gaming Data Centers/Cloud Computing
$4.1B (59.3%) $830M (12%)
Graphics Cards and processors for Hard/Software used in
consumer gaming consoles/PCs Data Centers to create
AI-fueled computation
Professional
Automotive
Visualization
$127M (1.8%) $189M (2.7%)
Autonomous driving chipsets used in next- Processors (mainly GPUs) available for use
generation automobiles and trucks over the internet, licensed by big data
companies
9
Figures from NVIDIA’s FY2017 Q4 10-K
NU | GS 9Catalysts
IBM looking to use NVIDIA chipsets (GPGPU-Tesla) in
their cloud network for AI learning and computing
(IBM’s cloud is used by 47 of 50 Fortune 500 companies).
NVIDIA is announcing a partnership with Facebook, and
20% upside of
releasing their quarterly earnings at their GPU conference NVDA stock
from May 8th-11th. The partnership is to build an open- in the next 18
source deep learning framework.
months
Qualcomm’s partnership with Apple recently fell through
leaving Apple with a newfound demand for a GPU supplier.
Information from NVIDIA, PCWorld
NU | GS 10Risks
Risks
Competition Application
of GPUs
AMD is
Google Intel beginning
rumored to
rumored to production of
release their Tesla Motors Ubisoft
enter GPU GPU chips for VW Group
VEGA GPUs (DRIVE) (Pascal GPU)
market for self gaming
for consumer
sustenance community
use
Info from PCWorld, WIRED
NU | GS 11Comparable Company Analysis
Company Market Cap EV/EBITDA Forward P/E BETA PEG P/BV
NVIDIA $62.01 27.28 30.86 1.48 3.14 10.59
AMD $12.52 -52.15 45.86 3.08 -1.73 29.62
Qualcomm $79.40 9.2 11.46 1.51 1.08 2.53
Intel $170.54 7.74 12.38 1.11 1.64 2.55
Median $70.71 8.47 21.62 1.50 1.36 6.57
Mean $81.12 -1.98 25.14 1.80 1.03 11.32
Figures from NYU Stern, Yahoo
Finance
NU | GS 12Discounted Cash Flow Analysis
Revenue Growth Rate: 20%
Cost of Sales % Margin: 40%
Figures from SEC 10-K, NYU Stearn,
Yahoo Finance
NU | GS 13Discounted Cash Flow Analysis (Cont.) NU | GS 14
Discounted Cash Flow Analysis (Cont.)
Bearish Case: ($119.63) Base Case: ($125.92) Bullish Case: ($145.51)
(14% Upside) (20% Upside) (38% Upside)
WACC: 10.6% WACC: 10.3% WACC: 9.4%
Perpetuity Growth: 2.9% Perpetuity Growth: 3% Perpetuity Growth: 3.1%
NU | GS 15Conclusion
NVIDIA presently has major leads in supercomputing, AI, GPGPU infrastructure
management, VR and automotive technologies.
GPU chips are the future of computing technology.
NU | GS 16Appendix A NU | GS 17
Appendix B NU | GS 18
You can also read
