In a note released early on Tuesday, JMP analyst Alex Gauna upgraded Nvidia from "market perform" to "market outperform", citing the company's increased focus on cloud, automotive and visual computing, which uses high performance processors to handle complex images and video. "[Nvidia] is successfully realigning its business model to more stable growth and gross margin opportunities, and, in our opinion, is in a position to deliver earnings upside in coming quarters," he wrote.
Gauna also cited a growing contribution from virtualization on Nvidia's Graphics Processor Units (GPUs), the automotive sector and IP licensing. Other positives for Nvidia include operating margin leverage thanks to the company's new, unified approach to design. Gauna also predicted multiple expansion thanks to Nvidia's role in cloud-based creative design, 3D design, self-driving vehicles, social gaming and virtual reality. Specifically, the analyst pointed to technology provided to virtual reality specialist Oculus, which was recently acquired by Facebook (FB) for $2 billion.
JMP raised its non-GAAP earnings estimates for fiscal years 2015 and 2016 to $1.15 and $1.30 a share, respectively, from its prior estimates of $1.
Although best known for its graphics offerings, Nvidia's "System on a Chip" technology has also been attracting positive attention recently. Last year, the company introduced its Tegra 4 System on a Chip, which combines CPU, GPU, image, video and sound processors.
At the Consumer Electronics Show (CES) earlier this year, Nvidia created a crop circle to publicize its 192 core processor chip, codenamed Tegra K1. GE's (GE) Intelligent Platforms division recently signed an agreement with Nvidia to bring the Tegra K1 to the embedded computing market.
Nvidia shares have risen 51.39% over the last 12 months.
-- Written by James Rogers in New York.
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