Chris Lau, Kapitall: In the technology space, intellectual property (or IP) helps protect the company from litigation, but does not generate any cash flow. But w hen a company takes a step in monetizing those kinds of assets, the move bodes well for investors. NVIDIA (NVDA) did just that. The graphics company said on its blog that it would license its GPU cores and visual computing patent portfolio to device manufacturers. [Read more from Chris Lau: Is Netflix Disrupting Traditional Television?] NVIDIA pointed out that licensing was not something new for the company. Its earlier GPU was licensed to Sony (SNE) for the PlayStation 3. And visual computing patents generated $250 million annually from Intel (INTC). Gain in Developer Support Licensing will help grow the NVIDIA platform, through support for developers. Kepler is used in GeForce, Quadro, and Tesla GPUs. It is also the basis for NVIDIA’s mobile processor, next-generation Tegra processor, Logan. Developers will now have greater incentive to work primarily with the NVIDIA integrated graphics processing platform. Still, ARM Holdings (ARMH) will not need to worry. ARM licenses Mali, which is also a competitor to Imagination Technologies. The unit is not a big contributor to revenues for ARM Holdings. Worries Still Remain One of the main reasons NVIDIA shares are being held back is that the company is fighting to gain a spot in the Soc (system on a chip) market. This is a growing segment, thanks to the popularity of mobile devices, but the market is dominated by Qualcomm (QCOM). NVIDIA is launching a SHIELD console. The price cut, ahead of the June 27 launch, suggests that demand will be weak. This negative perception could hurt shares, but NVIDIA may reduce its focus on the launch if interest declines.
Stock ComparisonOver the last 3 months, NVIDIA shares are positive, while Qualcomm and ARM Holdings are down. [Analyze These Ideas: Access a performance overview for all stocks in this article] The latter companies are trading lower because investors already expect a bright future for mobile chips. ARM trades with a forward P/E of 42 , compared to 19 for NVIDIA and 15 for Qualcomm. Conclusion NVIDIA is fairly valued, with a P/E of 15.5 and $6 in cash per share. Growth is expected to be 12% annually over the next 5 years. The company pays a dividend that yields 2.08%. Shares settled at $14.42 recently, but could trade lower as sentiment in markets continues to be negative. NVIDIA is a compelling company to consider as shares trade lower.
Written by Chris Lau, Kapitall Contributor