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  1. 1. NVIDIA (NVDA) Greg McEneaney Date: October 1, 2009 Consensus Estimate 7/09 1/10 1/11 Sector: Technology EPS N/A .20 .64 Industry: Semiconductors P/E N/A 75.9 23.72 Current Price: $15.18 Long Term Growth Rate: 12.67% 52 Wk Price Range: $5.75-$16.58 Ratio Analysis Co. Indus. Sector SP500 Ave. Daily Vol: 16.39 mil P/E (TTM) N/A 3.65 11.86 43.92 Beta: 1.77 P/S (TTM) 2.94 .51 .79 1.94 Market Cap: $8.32 Bil P/B (MRQ) 3.69 .95 2.16 3.22 Shares Out: 547.80 Mil ROA (TTM) 10.82 .36 1.39 3.53 Inst. Ownership %: 78.59% EBO Valuation $2.36 Div Yld: N/A Recommendation: HOLD Debt/Equity: 0.01 Stop-loss Price: $12.14 Member S&P 500? Yes Price 6-mo prob 12-mo prob Target Price $19.07 56% 75% Investment Thesis Summary  All valuations performed indicate that the Fundamental Valuation: stock is currently fairly valued. Bearish- Using a discount rate of 13.5%, EBO  NVIDIA’s 63% of gross income spend on evaluation states that the implied price of R&D implies that a groundbreaking NVIDIA should be $2.36, almost 85% less than innovation can be announced at any time. its current $15.18 trading price.  The importance of R&D in the Relative Valuation: semiconductor sectors means that Bearish- Relative Valuation metrics imply that competitors can also announce innovations NVIDIA is overvalued in comparison to its at any time. competitors in every category.  The entire chip sector was downgraded from Technical Analysis: buy to neutral by Broadpoint, which the Bullish – Only one form of technical analysis market took into account; however it could shows Bearish, rest are Bullish or Neutral. impact future earnings if their hypothesis is Earnings Analysis: correct. Bullish/Neutral – Most analysts have been  Due to the proximity of NVIDIA’s product giving NVIDIA favorable and improving announcement to Broadpoint’s downgrade, earnings estimates, however, NVIDIA still has the market underreacted to ION release fairly unstable earnings surprises.  Earnings per Share are expected to grow for Analyst Recommendations: the next two fiscal years. Bullish/Neutral – Mean recommendation is 2.42,  NVIDIA products are well positioned for which is in the hold/outperform category. the holiday season with the lower priced PS3 Ranking is slightly higher than ranking from and Zune HD, but only if consumers begin three months ago. spending again. Institutional Ownership:  Once more carriers begin releasing cell Neutral – The number of institutions holding phones powered by Google’s Android, shares in NVIDIA has decreased, but the overall NVIDIA should see an increase in sales of stake in the company by institutions has their Tegra chip. increased by .6%  NVIDIA continues to hold a competitive Piotroski Analysis: advantage over their competitors in the Bearish/Neutral – NVIDIA scored a 4 on the GPU market. Piotroski scale and was in the first quintile.  The release of Windows 7 should cause a spike in the GPU market. 1
  2. 2. Company Summary The NVIDIA Corporation was incorporated in April of 1993, and soon emerged as the inventor of the graphic processing unit. (GPU) GPU’s are processors that are used to generate graphics on computing devices such as personal computers, video game consoles, and mobile devices. NVIDIA’s invention of the GPU is the reason that computer graphics look as impressive as they do today. The company is currently split into four product segments, the GPU business, the professional solutions business, the media and communications processor business (MCP), and the consumer products business. 1 Graphic processing units are what the company is best known for, with their GeForce line of GPUs. GeForce GPUs are used by nearly every PC original equipment manufacturer (OEM), due to this they are in a high percentage of PCs being sold today. In a personal computer, a GPUs functions include graphical power for video games, photo editing, and viewing movies. NVIDIA has long been the leading innovator in this industry, with recent advancements including SLI technology which allows multiple graphics cards to be used in conjuncture, as well as their integrated PhysX software that allows for real time physics to be used in PC and console games. 2 Professional Solutions is another business sector in which NVIDIA is the market leader. For this market NVIDIA produces what are essentially PC graphics cards that have been repurposed for industrial 3D rendering and other graphic design uses. NVIDIA is also involved in the MCP business. An MCP is motherboard chipset meant for integration with their GPUs. The MCP is the way that NVIDIA’s SLI technology can run on a personal computer. Currently, the MCP and GPU divisions are focusing on downsizing their products to fit into increasingly popular netbooks. They recently released the Zotac Ionitx motherboard that includes the power and size efficient ION GPU. The first computer to include this motherboard and GPU is the HP mini 311, which is less than 12 inches wide, yet can still display videos in 1080P quality resolution. The ION GPU is intended to be included in over 50 new products being released this year. 3 NVIDIA’s last market segment is consumer products. This business segment includes revenues associated with video game consoles and other digital consumer electronics. NVIDIA is the GPU processor for Sony’s PlayStation 3, and develops GPUs for mobile devices. For the mobile device market, NVIDIA has created the Tegra “computer-on-a-chip” which is smaller than a US dime yet has the ability to provide mobile computing devices with elaborate user interfaces, high-definition video and a more authentic internet experience. 4 The following information is from NVIDIA’s consolidated revenues by segment statement. Numbers were taken from the company’s 2009 10K statement, published in January of 2009. Revenues by Segment (In Thousands) Fiscal Year 2009 % of Total Fiscal Year 2008 % Change as % of Revenues Revenue Revenues Total Revenue Business Segments GPU 1,912,262 56% 2,518,281 -6% Professional Solutions 693,376 20% 588,358 6% Media & Com Processors 655,565 19% 710,353 2% Consumer Products 136,334 4% 251,137 -2% Other 27,322 1% 29,731 0% Total 3,424,859 4,097,860 1 www.reuters.com 2 www.nvidia.com 3 NVIDIA press release found on reuters.com 4 www.nvidia.com 2
  3. 3. Competition and Strategy Strategy NVIDIA is the only publicly traded company that focuses exclusively on graphics chips5, so at its core is very much focused on producing innovative products for consumers of high end video processors. This includes PC gamers, video editors, and graphic designers. In this sector they have two different user bases in which to sell, original equipment manufacturers and the consuming masses. Due to the speed of the business cycle it is difficult to maintain a sustainable competitive advantage. The length of time between the releases of revolutionary technologies can be as short as nine months. Never knowing what the competition is going to release next makes it difficult for NVIDIA to sign long term contracts or keep much brand loyalty. GPU consumers are often fickle and will often upgrade to the product with the highest benchmarks regardless of the brand name on the packaging. These factors cause semiconductors to be a very research and development driven sector. Every year NVIDIA takes heed to this by investing large quantities of income into R&D. In the 2009 fiscal year, they invested $855,879,000 into R&D, or 63% of gross income.6 Due to this tug of war with innovations, NVIDIA is always susceptible to losing market share. In the dedicated desktop graphics chip industry, NVIDIA remains the juggernaut, with a 67% hold on market share.7 However, every time a competitor releases a more powerful unit than NVIDIA’s current offering, that market share falls, and vice versa. In order to hedge against the volatility of the dedicated desktop GPU industry, NVIDIA has been moving some of its R&D money towards designing GPUs for other devices. For the past three years an NVIDIA graphics processor has been powering Sony’s Playstation 3. While in the current gaming market, the PS3 has the least market share but it is also the most graphically powerful. For the console market, good news is on the way for NVIDIA though, as the market leading Nintendo Wii’s sales are down by 50% and the PS3s sales are on the rise thanks to a lower price tag and a new slim model. 8 More recently, NVIDIA has moved into the growing markets of netbooks and mobile devices. Both of these markets require the company to develop products that are smaller in size but retain their world renowned performance. Earlier in September of 2009, NVIDIA announced that a new HP mini netbook would be the first to carry their new ION graphics chip which, paired with Intel’s Atom CPU, produces performance comparable to full size laptops while being small and energy efficient enough to meet the battery life demands associated with netbook computers.9 Also released recently was the Tegra GPU which is the size of an American dime. The first product to use the Tegra is Microsoft’s Zune HD, which is the most technologically advanced Zune yet and is being marketed to compete with Apple’s iPod touch. Google’s Android smart phone operating system is also slotted to use Tegra, which should become more important as a larger number of Android phones come on the market. These new markets should continue to be a growing portion of NVIDIA’s profits for the coming years. Due to these factors, NVIDIA seems relatively well positioned for the upcoming fourth quarter of their fiscal year. The holiday season should see increased sales thanks to new demand for the Playstation 3, as well as the Zune HD and the large expected quantity of netbooks carrying the new ION processor. Another help for the company is coming from Microsoft, who will be releasing their new operating system, Windows 7 in October of 2009. A large quantity of PC users skipped on Windows Vista, which should mean a higher demand for the consensus better product in 7. Due to the graphical needs of the user interface in Windows 7, it would not be a surprise to see many consumers purchasing computers with dedicated graphics cards made by NVIDIA. On the downside, investment bank Broadpoint recently downgraded the entire chip sector in mid September 2009 stating that recent improvements in the sector had most likely been caused by supply chain balancing due to scaled back production during the recession. The stock price did react negatively to this, but NVIDIA released their ION chip soon after the downgrade. This may have caused investors to underreact to the good news. If the fourth quarter goes as planned, NVIDIA could see a jump in their stock price. 5 www.wikiinvest.com 6 NVIDIA’s Fiscal Year 10K report 7 www.bit-tech.net 8 www.destructoid.com (video game blog) 9 www.smartmoney.com 3
  4. 4. Competition NVIDIA faces two key competitors in the Semiconductor industry, even though neither of them can entirely be considered direct competitors. These companies are Intel and Advanced Micro Devices (AMD). They are not direct competitors in the sense that they are not fully devoted to graphics processing devices, but they do have divisions that can get in the way of NVIDIA’s growth. Due to the price wars in the GPU market as well as the research & development budgets needed to sustain profitability have left NVIDIA the only remaining company fully devoted to GPUs. The last remaining direct competitor to NVIDIA, ATI, was purchased by AMD in 2006. Intel may not produce dedicated GPUs, but they still get in the way of NVIDIA’s market share. Intel processors and motherboard chipsets come with what is called onboard graphics, which use the power of the processor to run the graphics instead of a dedicated chip. While the performance pales in comparison to a system running an NVIDIA GeForce card, some people find graphical performance less of a priority in their computing life. This is why Intel controls 49.7% of the total graphics market10. However, if a consumer wants a high performance GPU, Intel has no product to meet this need. The competition is not entirely unfriendly however, on the netbook front NVIDIA’s ION chip is being paired with Intel’s Atom CPU to create the “ION Platform” which will be going into over 50 products within the next year giving netbook owners a high performance alternative. Until Intel decides to build a dedicated GPU, (which is unlikely) NVIDIA will continue to have a substantial competitive advantage in this market. AMD is the closest thing NVIDIA has to a direct competitor due to their acquisition of ATI technologies. However, AMD is the second place CPU producer and they acquired the second place GPU producer, so that does not put them in any better of a position. This being said, AMD/ATI acquired the rights to put their GPUs in the Xbox 360 and the Nintendo Wii, the two main competitors to the NVIDIA driven Playstation 3. The acquisition of ATI does put AMD in a good position to combat Intel and NVIDIA in the netbook market, being able to produce CPUs and GPUs within the same company and not having to work about contracts with other manufacturers. In the dedicated GPU market, ATI cards are a alternative to their NVIDIA counterparts, but at this moment in time, their 33% market share shows that they have not innovated enough to create a sizable following. Historical Revenue and Earnings: Historical Revenue (millions) Historical Earnings FY 01/10 FY 01/09 FY 01/08 FY 01/10 FY 01/09 FY 01/08 1st Quarter 664.2 1,153.4 844.3 $0.37 $0.32 $0.24 2nd Quarter 776.5 892.7 935.3 $0.19 $0.22 $0.32 3rd Quarter NA 897.7 1,115.6 NA $0.11 $0.42 4th Quarter NA 481.1 1,202.7 NA $0.27 $0.46 Total 1,440.8 3,424.9 4,097.9 $0.56 $0.06 $1.44 NVIDIA has seen a downturn in earnings over the last fiscal year, much like the other semiconductor firms; namely, AMD. The main issue with semiconductor producers, especially those who produce Graphics Processing Units (GPUs) is that they produce what is considered an old technology due to the increasing power of on board processors. However, even with the loss, NVIDIA’s most recent quarter 2 earnings were 10 www.bit-tech.net 4
  5. 5. better than expected. This was partly due to cost cutting measures the company enacted during the past year, allowing most expenses to be at a lower level than analyst projections.11 11 According to http://seekingalpha.com/article/154910-NVIDIA-income-statement-analysis-for-july-09-quarter 5
  6. 6. I. Fundamental Valuation 12 N v idia PARAMET ERS FY1 FY2 Ltg EPS Fo re c asts 0.20 0.64 12.67% Mo de l 1: 12-y e ar fo re c asting ho riz o n (T=12). Bo o k v alue / share (last fy e ) 4.45 and a 7-y e ar g ro wth pe rio d. D isco unt Rate 13.50% D iv ide nd Pay o ut Ratio 0.00% N e x t Fsc Ye ar e nd 2010 Curre nt Fsc Mth (1 to 12) 9 Targ e t ROE (industry avg .) 7.84% Ye ar 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Long-te rm EPS Growth Rate (Ltg) 0.1267 0.1267 0.1267 0.1267 0.1267 Fore casted EPS 0.20 0.64 0.72 0.81 0.92 1.03 1.16 Be g. of year BV/Shr 4.450 4.650 5.290 6.011 6.824 7.739 8.770 Implie d ROE 0.138 0.136 0.135 0.134 0.133 0.132 ROE (Be g. ROE, from EPS forecasts) 0.045 0.138 0.136 0.135 0.134 0.133 0.132 0.122 0.111 0.100 0.089 0.078 Abnormal ROE (ROE-r) -0.090 0.003 0.001 0.000 -0.001 -0.002 -0.003 -0.013 -0.024 -0.035 -0.046 -0.057 growth rate for B (1-k)*(ROEt-1) 0.000 0.045 0.138 0.136 0.135 0.134 0.133 0.132 0.122 0.111 0.100 0.089 Compounded growth 1.000 1.045 1.189 1.351 1.533 1.739 1.971 2.232 2.504 2.781 3.059 3.332 g ro wth* AROE -0.090 0.003 0.002 0.000 -0.001 -0.003 -0.005 -0.030 -0.060 -0.097 -0.140 -0.189 required rate (r) 0.135 0.135 0.135 0.135 0.135 0.135 0.135 0.135 0.135 0.135 0.135 0.135 0.135 discount rate 1.135 1.288 1.462 1.660 1.884 2.138 2.426 2.754 3.126 3.548 4.027 4.570 div. payout rate (k) 0.000 Add to P/B PV(growth*AROE) -0.08 0.00 0.00 0.00 0.00 0.00 0.00 -0.01 -0.02 -0.03 -0.03 -0.04 Cum P/B 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.91 0.89 0.86 0.83 0.79 Add: Pe rpetuity beyond curre nt yr (Assume this yr's AROE fore ver) -0.59 0.02 0.01 0.00 -0.01 -0.01 -0.02 -0.08 -0.14 -0.20 -0.26 -0.31 Total P/B (P/B if we stop e st. this period) 0.33 0.94 0.93 0.92 0.92 0.91 0.90 0.83 0.75 0.66 0.57 0.48 Implie d pric e 1.63 4.60 4.57 4.53 4.50 4.47 4.43 4.06 3.66 3.23 2.79 2.36 Che ck: Be g. BV/Shr 4.45 4.65 5.29 6.01 6.82 7.74 8.77 9.93 11.14 12.38 13.61 14.83 Implie d EPS 0.20 0.64 0.72 0.81 0.92 1.03 1.16 1.21 1.24 1.24 1.21 1.16 Implie d EPS growth 2.200 0.127 0.127 0.127 0.127 0.127 0.040 0.022 0.002 -0.019 -0.043 Inputs: 1. EPS Forecasts and long-term growth rate (LTG) were obtained from www.reuters.com on September 22, 2009. 2. Book value per share derived from the balance sheets given at www.reuters.com. Total equity was $2,394,700,000 and Total Shares Outstanding were 538,460,000 as of January 25, 2009. Therefore the Book value Per Share equaled $4.45. 3. Discount rate: The Risk Free Rate was the 20 year Treasury bond rate of 4.33% according to www.federalreserve.gov on September 22, 2009. NVIDIA’s Beta was given as 1.77 by www.reuters.com, and 9.5% was used for the expected return on the market. This resulted in a CAPM Discount rate of .0433+1.77(.095-.0433)=13.50% 4. The Dividend Payout ratio was 0%, as NVIDIA does not pay any dividends, according to www.reuters.com. 5. Next fiscal year-end is 2010 6. Current fiscal month is 9, as it is currently September and the fiscal year ends in January. 7. The Target ROE for the Semiconductor industry is 7.84% as reported by www.reuters.com. Output and Sensitivity Analysis: 1. Based on these parameters, a 12 year forecasting horizon and a 7 year growth period, the EBO valuation is $2.36, implying that NVIDIA is extremely overvalued. 2. Changing the discount rate to 4.76%, a decrease of 64.7%, creates an EBO evaluation of $15.17, one cent from the current market price. This means that if the EBO expectations are realized, we can expect to earn an annual return of 4.76%. While a decrease of 10% in the discount rate (12.15%) yields an EBO valuation of $2.96 3. Changing the growth rate to 13.937% (a 10% increase) yields an EBO valuation of $2.42, indicating that NVIDIA does not have much sensitivity to changes in long term growth rate. 12 Numbers from www.reuters.com 6
  7. 7. 4. Changing the industry ROE to 8.624 (10% increase) moves the EBO valuation to $2.63. Out of all the factors, NVIDIA is most sensitive to changes in the discount rate. 7
  8. 8. II. Relative Valuation13 Comparables Mean FY2 Earnings Estimate Forward Mean LT PEG P/B ROE Value Ticker Name Mkt Cap Current Price (next fiscal year) P/E Growth Rate (MRQ) 5 yr ave Ratio P/S 1 INTC Intel Corporation 109.33 B 19.53 1.23 15.88 11.78% 1.35 2.80 17.38% 0.16 3.25 2 AMD Advanced Micro Devices inc. 4.06 B 6.08 -1.26 N/A 11.67% N/A N/A -31.39% N/A 0.73 3 TXN Texas Instruments 29.97 B 23.76 1.58 15.04 13.38% 1.12 3.28 19.14% 0.17 2.90 4 STM STMicroelectronics 8.66 B 9.86 0.13 75.85 1.95% 38.90 1.03 0.86% 1.20 0.98 NVDA Nvidia Corporation 8.32 B 15.18 0.64 23.72 12.67% 1.87 3.69 17.71% 0.21 2.94 Implied Price based on: P/E PEG P/B Value P/S 1 INTC Intel Corporation $10.16 $10.93 $11.52 $11.74 $16.78 2 AMD Advanced Micro Devices inc. N/A N/A N/A N/A $3.77 3 TXN Texas Instruments $9.62 $9.11 $13.49 $12.49 $14.97 4 STM STMicroelectronics $48.54 $315.40 $4.24 $87.26 $5.06 High $75.85 $315.40 $13.49 $87.26 $16.78 Low $9.62 $9.11 $4.24 $11.74 $3.77 Median $10.16 $10.93 $11.52 $12.49 $10.02 Indicator Interpretation P/E Bearish – NVIDIA has a P/E ratio higher than 3 of its competitors. The P/E price says that the stock should be trading at around $10.16, which is 1/3 less than what it is currently trading at. This indicates that the stock is currently overpriced. This high P/E ration could also imply that NVIDIA has less risk or is more growth oriented. PEG (P/E/G) Bearish – NVIDIA has a PEG ratio higher than two of its competitors. The PEG price of the stock is $10.93, also near 1/3 less than the actually stock price. Both of these indicators imply that NVIDIA may be overpriced. P/B Bearish – NVIDIA far and away has the highest P/B Ratio. This along with the P/B price of $11.52 shows that NVIDIA may be overpriced. Value (P/B/ROE) Bearish – NVIDIA has the second highest value ratio amongst its competitors, and at the Value ratio price, NVIDIA would trade at $12.49, still lower than its current price. Like all previous indicators have stated, NVIDIA may be overpriced. P/S Bearish – NVIDIA has the second highest P/S ratio as well, and at the P/S price the stock would be trading at $10.02, which is more than 1/3 less than the current price. This could also imply that NVIDIA has higher profit margins than its competitors, or that it has less risk. Summary Bearish – All factors of relative valuation point to the idea that NVIDIA’s stock is trading at an overvalued price. Good news could come from the fact that NVIDIA’s most direct competitor, AMD, was not included in any of the ratios due to negative projected earnings. When it is all said and done, however, relative valuation states that NVIDIA’s stock should be trading at around 2/3 of its current price. 13 Information from yahoo finance and Reuters 8
  9. 9. III. Technical Analysis14 Insert three charts here (see instructions) Chart 1: Bollinger Bands Slow Stochastics Chart 2: Exponential Moving Average (EMA) MACD 14 Charts from CNBC 9
  10. 10. Chart 3: Linear Regression Momentum Briefly discuss each indicator in the following table. Indicator Interpretation Bollinger Bands Bullish/Neutral – The stock price peaked near the top Bollinger Band earlier this month, but has since begun regressing back to the simple moving average. The bands are also beginning to move towards each other, which signify a decrease in the stock’s volatility. Stochastics Bearish- %K is less than %D with a seemingly increasing gap, this is construed as a bearish indicator. Moving Averages Bullish- The stock price has been above both moving averages for almost 3 months now. Both Moving averages are also steadily increasing. These are both bullish indicators. MACD Bullish/Neutral – The MACD has been above 0 for most of the past 2 quarters. MACD is also above the signal line. Both of these are bullish indicators. However, the MACD line has shown recent signs of decreasing, warranting a possible neutral rating. Regression Neutral – The regression line has been steadily moving upwards, which is a bullish signal. However, the price is currently above the line which indicates that the price is likely to fall back to the regression line. Momentum Bullish/Neutral – The Momentum of NVIDIA’s is greater than 100, which is a bullish indicator. Over the past week the slope of the chart has evened out, which is a neutral sign. 10
  11. 11. IV. Earnings Analysis15 Earnings Surprises (in millions) July 2009 April 2009 January 2009 October 2008 July 2008 (Last qtr) (2 qtrs prior) (3 qtrs prior) (4 qtrs prior) (5 qtrs prior) Estimate -0.02 -0.10 -0.11 0.12 0.17 Actual 0.07 -0.09 -0.18 0.20 0.13 Difference 0.09 0.01 -0.07 0.08 -0.04 Mean Earnings Estimates October 2009 January 2010 January 2010 January 2011 LT Growth This Quarter Next Quarter This Fiscal Year Next Fiscal Rate Year Earnings .09 .12 .20 .64 12.67 # Estimates 19 19 19 19 6 Earnings Per Share Estimates Revisions Summary Last Week Last 4 Weeks Revised Up Revised Down Revised Up Revised Down Quarter ending 10/09 0 0 2 0 Quarter ending 01/10 0 0 2 0 Year ending 01/10 0 0 3 0 Year ending 01/11 0 0 4 0 Over the past five quarters, NVIDIA has had three positive earnings surprises and two negative ones. The most recent earnings surprise has been the most valuable one. Overall, the earnings surprises of NVIDIA do not seem to show much stability, these rank as a neutral signal until another consecutive earnings surprise can be added on. For the first time in almost a year, quarterly earnings estimates are positive. October 2009 earnings expectations are slightly lower than the previous year’s estimates, but January’s estimates have increased by a massive amount. However, these much improved earnings estimates may make it more difficult to continue with positive earnings surprises. These numbers therefore should be approached with cautious optimism, or a Bullish/Neutral signal. During the past week there have been no revisions in the Earnings per share estimates. But, in the past months, every estimate category has been revised in an upwards pattern. The Revisions Summary counts as a Bullish indicator. 15 Information from Reuters 11
  12. 12. V. Analysts’ Recommendations16 Current 1 Month Ago 2 Months Ago 3 Months Ago Buy 7 8 8 7 Outperform 2 2 2 2 Hold 14 14 13 16 Underperform 0 0 0 0 Sell 1 1 1 1 No Opinion 0 0 0 0 Mean Rating 2.42 2.36 2.33 2.46 The current overall mean rating for NVIDIA is 2.42, which ranks as a Hold/Outperform recommendation. This is considered a slightly bullish indicator considering the stock does not have a complete Outperform recommendation. Recently, the stock has decreased in mean rating, which does look slightly bearish, but the stock is still increased over its rating three months ago. Overall, this looks to be a Bullish/Neutral indicator. 16 Information from Reuters 12
  13. 13. VI. Institutional Ownership17 # of Holders % Beg. Holders Shares % Shares Shares Outstanding 547,788,606 100.00% # of Holders/Tot Shares Held 554 95.19% 449,241,436 82.01% # New Positions 67 11.51% # Closed Positions 95 16.32% # Increased Positions 224 38.49% # Decreased Positions 246 42.27% Beg. Total Inst. Positions 582 100.00% 445,943,301 81.41% # Net Buyers/3 Mo. Net Chg -22 47.66% 3,298,135 0.60% The number of institutional holders of NVIDIA’s stock has decreased by 22, which is construed as a bearish signal. However, over this same stretch of time, the percent of shares owned by institutions increased by .60%, which is slightly bullish. These conflicting numbers imply that while some institutional owners are selling the stock, the ones that are keeping it are increasing their position in it. Two conflicting signals such as these can only warrant a Neutral rating. 17 Information from Reuters 13
  14. 14. VII. Piotroski Analysis18 A. P/B ratio and quintile (1=growth, high P/B; 5=value, low P/B): _____P/B=3.69 _1st Quintile________ B. Piotroski Score: ______4__________ Piotroski Item Variable needed to compute Value Points 1. Positive net income TTM net income $-392,600,000 0 2. Positive cash flow TTM cash flow $300,400,000 1 3. Earnings Quality 1 4. Decreasing Debt Debt/assets most recent ann figure 28.5% 1 Debt/assets previous ann figure 30.1% 5. Increasing working capital Current ratio most recent ann figure 2.78 0 Current ratio previous ann figure 2.99 6. Improving Productivity Asset turnover most recent ann figure 1.0 0 Asset turnover previous ann figure 1.3 7. Growing Profitability ROA most recent ann figure -.85% 0 ROA previous ann figure 24.84% 8. Issuing Stock Shares outstanding most recent ann 548,000,000 1 Shares outstanding previous ann 606,000,000 9. Competitive Position Gross margin most recent ann 34.3% 0 Gross margin previous ann 45.6% Total 4 A relatively low Piotroski score of 4 is an obvious indicator of Bearish/Neutral. The categories of Increasing working capital and improving productivity were relatively close to earning points, which is a good sign for a company coming off of budget cutback measures. Profitability is obviously a large issue with the company, but most analysts agree that profitability should improve over the past few quarter’s negative figures. These signs of improvement keep the Piotroski analysis from being completely bearish. 18 Information from Morningstar.com 14