With the exception of Intel Corp. (NASDAQ: INTC), chip makers’ stocks have gotten taken something of a beating since the beginning of the year. Over the past 12 months, though, there’s one chip maker showing a share price gain of more than 50% — Nvidia Corp. (NASDAQ: NVDA). That might ordinarily be good news, yet in this case Nvidia’s share price reflects a -44% drop from its 52-week high.
The Semiconductor Industry Association reported yesterday that global chip sales fell -2% sequentially, to a total of $24.7 billion in the second quarter of 2011. The second quarter is typically a good one for chipmakers, but Intel shares and shares of Texas Instruments (NYSE: TXN), Qualcomm Inc. (NASDAQ: QCOM), Advanced Micro Devices, Inc. (NYSE: AMD), and Broadcom Corp. (NASDAQ: BRCM) all fell between about -4% and -7% yesterday. Only Nvidia moved up, gaining a hefty 5%.
The biggest drop in sales occurred in Japan, where the after-effects of the hurricane and tsunami are blamed for a drop of more than -8%. European sales fell by -4.5%.
Nvidia managed to avoid the downturn with a sales jump of 9% for its stand-alone graphics processors (GPUs), pushing the company’s market share to just over 50% and taking the lead in GPU sales from AMD. According to Mercury Research, cited at Barron’s, the reason for Nvidia’s gain is the sales surge for Intel’s new “Sandy Bridge” CPU which incorporates the GPU on the Sandy Bridge die.
The Intel processor is being incorporated in a wide range of high-end notebook computers, and notebook makers are also including a GPU on quad-core notebooks in about 90% of shipments. It is perhaps ironic that the Sandy Bridge processor, which aimed to kill the market for GPUs, has instead given a boost to Nvidia.
Nvidia reports second quarter earnings a week from Thursday, and it will be at that time that we find out for sure how successful the company has been in selling its GPUs. The company’s trailing 12 months P/E ratio is already quite high at 34.36 and its price/book ratio is also high at 2.54. Expectations are weak, with a forward P/E of 11.94.
Given those numbers, Nvidia is surely not a value play, but more of a growth investment. However, the growth will have to be explosive to move the share price a lot. The 9% market-share gain boosted the stock by 5%, but a far bigger leap will be needed to get shares back toward 52-week highs.
Nvidia shares are up more than 2% in the opening minutes of trading this morning, to $14.90, in a 52-week range of $8.65-$26.17.
Paul Ausick
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