Nvidia Corp. $38 - Nasdaq symbol NVDA

NVIDIA CORP. $38 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 548.8 million; Market cap; $20.9 billion; WSSF Rating: Average) is the most specialized of these three chipmakers. It develops 3D graphics chips and related technology for computers, gaming consoles and other electronic devices. The company focuses on design, and outsources production to other chipmakers. Nvidia’s stock has nearly doubled in the past six months, despite concerns over the recent acquisition of chief rival ATI Technologies by Advanced Micro Devices (AMD). Although AMD-powered computers will probably only use ATI graphic chips in the future, Nvidia is doing a good job expanding into new fields such as graphics chips for cellphones and handheld video game players. Nvidia now has roughly 33% of the graphics market, up from 20% a year earlier. Nvidia earned $0.34 a share (total $198.1 million) before unusual items in its second fiscal quarter ended July 29, 2007, up 78.9% from $0.19 a share ($112.0 million) a year earlier (all pershare figures adjusted for a 3-for- 2 stock split in September, 2007). Revenue grew 36.0%, to a record $935.3 million from $687.5 million. Gross margin improved to 45.3% from 42.5%. The company maintains its advantage in the graphics chip market with a strong commitment to research. In the latest quarter, research spending rose 24.1%, to $158.0 million (16.9% of revenue) from $127.3 million (18.5% of revenue). The outlook for graphics chips is bright. More people are using their home computers to edit movies and play games. The launch of the new Microsoft Windows Vista operating system, plus the shift to high-definition video, should also spur long-term demand. We still like Nvidia’s long-term outlook. However, revenue growth could slow down in the next few months. Strong demand has cut inventory levels, which could make it hard for Nvidia to keep up with new orders. Nvidia also faces growing competition from Intel, which is expanding its own graphics chip operations. Nvidia is a hold.

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