NVIDIA Beats, Then Gets Beaten

NVIDIA NVDA reported strong quarterly earnings last night, raised guidance, and yet the stock sold off this morning, as doubts continue to linger about the viability of the company. The company, based in Santa Clara, reported earnings of 32 cents per share on $1.02 billion for the second quarter. Wall Street had been expecting earnings of 25 cents per share on $1.01 billion. In addition, the company guided third quarter revenues to $1.06 to $1.08 billion, versus estimates of $1.05 billion. It also said the tax rate for the third quarter will be 15 to 17 percent. "We grew solidly this quarter," said Jen-Hsun Huang, NVIDIA president and chief executive officer. "Consumer demand for notebooks powered by our GeForce GPU, with its unique Optimus technology, resulted in record revenue for these products. "The future of computing is mobile and visual. With Tegra's momentum and our growing GPU businesses, we are ideally positioned to lead the industry forward," Huang said in the press release. After being up as much as 16% in after hours trading yesterday, the stock is hovering near the flat line, down a few pennies as of the time of this article. The reason for this, as Barron's notes, is the continued bearishness about the "Tegra" processor, which is being used in smartphones and tablets. Tiernan Ray, the author of the article, goes into more detail about the bearishness surrounding Tegra. Caris, and MKM Partners were both Bearish on the ability of Tegra, as it looks like adoption has not been as fast as some have expected. NVIDIA has had its shares of problems in the past, but it looked like with the Tegra chip, the company would be able to turn its course of action around. There was much hype about the Tegra chip at the Consumer Electronics Show back in January, and it looks like that hype has not materialized, at least for now. At less than 11 times earnings, NVIDIA shares are not expensive, especially for a company growing revenues at 25% year-over-year. Shares have returned nearly 50% over the past year, so perhaps, shares have gotten ahead of themselves. Still, this is a tech company growing revenues at 25%, so the multiple disconnect between growth and price is clearly there for the taking. We will see if NVIDIA can deliver on the hype and promise it has offered in the past. Shareholders have been rewarded, but there should be more where that came from. ACTION ITEMS:

Bullish:
Traders who believe that NVIDIA's Tegra chip will deliver might want to consider the following trades:

• There is a clear disconnect on the price over what NVIDIA's growth prospects are offering. Consider going long NVIDIA and short AMD AMD if you believe that the Tegra will start to see mass adoption.

Bearish:
Traders who believe that Tegra will not see adoption as fast as NVIDIA thinks may consider alternate positions:

• The company at this point, has hinged its future on Tegra. If it can't deliver, then all bets are off.
  
  

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.