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Is Nvidia's Changeover a Good Bet?

Its better-than-expected results were largely attributed to growth in consumer sales, which continue to rise, helped by increased Tegra demand. Nvidia continues to steal market share from Advanced Micro Devices (AMD) in graphic chips even as Intel (INTC) said a month earlier that it was hurt by rising inventories.

In terms of guidance, the company expects Q4 revenue to come in the range of $1.03 billion to $1.18 billion. While this might be slightly lower than analysts' estimates of $1.21 billion, it will represent annual growth of over 20%.

Nvidia ended the call announcing to investors its plans to pay the first-ever dividend in the company's history. The payout of 7.5 cents per share will begin Dec. 14, while also extending its current share-repurchase program by an additional two years through 2014.

Bottom Line

Another area that stood out during the quarter was the reversal of what once seemed a margin depreciation. That gross margins jumped over 1 point was indeed impressive and suggests that even as the company spends to transform its business, it keeps a focus on profitability. That said, as good as I feel about Nvidia's ability to transform itself, I don't expect Qualcomm, Texas Instruments or Intel (INTC) to make this an easy transition.

Anyone wanting to place a bet on Nvidia at this point should feel pretty good about its prospects -- even as its PC business slowly erode. The market knows this and so does Nvidia. But at current levels, I think the risk-reward tradeoff favors Nvidia. And it is not too unrealistic to expect the stock to trade in the $15-to-$20 range over the next 12 to 16 months.

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: NVDA, INTC, ARMH, QCOM, TXN, AMD, MSFT, GOOG, AAPL 
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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