Is Nvidia's Changeover a Good Bet?

NEW YORK ( TheStreet) -- For as well as semiconductor stocks such as Qualcomm ( QCOM), ARM Holdings ( ARMH) and Texas Instruments ( TXN) have performed over the past several quarters, it seems Nvidia ( NVDA) can't get any love.

The company is finding it difficult to convince Wall Street that it is more than just a graphics chip "has been." Investors who are willing to bet on Nvidia's ability to find growth beyond PCs may be able to capitalize on a good turnaround story. But is it worth the risk?

All About Tegra

The imminent death of the PC has filled the market with pessimism in its assessment of Nvidia's future. It's hard to argue the validity of these concerns since roughly two-thirds of Nvidia revenue still comes from PC sales.

But the company has seen the writing on the wall for quite some time. Nvidia understands that unless it reduces its dependency on PCs and broadens its product portfolio, it's likely heading to a demise of its own.

To that end, the company has developed a new mobile strategy and has been pushing its Tegra line of mobile processors. Tegra is a system on chip (SoC) that integrates many of the features of the ARM architecture into one package. Although it remains relatively unknown, Tegra's low power consumption and high performance makes this series one of the best chips on the market today.

Nvidia has been making great strides in securing new business from some prominent companies including Microsoft ( MSFT) and Google ( GOOG) where the Tegra 3 is a key component inside both Surface and Nexus 7 tablets. What's more, as Nvidia is shoring up its footing in the realm of mobility to compete more effectively with Qualcomm and Texas Instruments, the company still has not forgotten its PC roots.

Nvidia recently secured design wins in products such as Apple's ( AAPL) MacBook Pro, which features the retina display. So with all of these positive catalysts surrounding the company, the stock is still down over 10% YTD -- a little puzzling.

I think this is one story that the market may be overlooking, if not getting entirely wrong. Likewise, if the company's recent earnings said anything at all; it's that the company prospects for success are much better than previously expected.

An Impressive Quarter

In light of all of the doom and gloom related to weakening PC sales, the company delivered as solid a performance as could have been expected. In its third quarter, Nvidia reported net income of $209.1 million, or 33 cents per share, on revenue of $1.2 billion. The company beat both on its top and bottom lines while exceeding consensus estimates of 30 cents per share and revenue of $1.1 billion.

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