NVIDIA CORP. $31 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 538.0 million; Market cap: $16.7 billion; Price-to-sales ratio: 3.5; Dividend yield: 1.5%; TSINetwork Rating: Average; www.nvidia.com) is a leading designer of 3D-capable video chips, which make video games run more smoothly and appear more lifelike.
Nvidia aims to cut its reliance on personal computers and smartphones by focusing on chips for games, high-definition TVs, cars and cloud computing. As part of this plan, it hoped to sell its Icera subsidiary, which designs mobile-phone chips. However, it was unable to find a buyer, so it now plans to wind down Icera in the next few months.
If you exclude a writedown of Icera and other unusual items, Nvidia earned $255 million in its fiscal 2016 third quarter, which ended October 25, 2015, up 15.9% from $220 million a year earlier. Per-share profits rose 17.9%, to $0.46 from $0.39, on fewer shares outstanding. Revenue gained 6.5%, to $1.3 billion from $1.2 billion.
Nvidia spent $329 million (or 25.2% of its revenue) on research, down 3.2% from $340 million (or 27.8% of revenue) a year earlier.
Thanks to this spending, Nvidia has developed new chips that power virtual reality systems, and in-car information and entertainment displays. Microsoft will also use Nvidia’s new graphic chips in its Azure cloud computing service.
The company’s strong balance sheet will let it keep investing in new products: as of October 25, 2015, it held cash of $4.7 billion, or $8.79 a share. Its longterm debt is just $1.4 billion.
Nvidia’s strong financial position will also help it fund its share repurchase plan: it can buy back up to $1.6 billion worth of its stock, or 10% of its market cap, through December 2018.
Thanks partly to its aggressive share buybacks, the stock has gained 52% in the past year. It now trades at a somewhat high 28.7 times the $1.08 a share Nvidia should earn in fiscal 2016.
The company also raised its quarterly dividend by 17.9%, to $0.115 from $0.0975. The new annual rate of $0.46 yields 1.5%.
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