Today’s stock pitch is for NVidia, a tech stock that has totally taken off in the past year. Nvidia (NYSE: NVDA) is a GPU (graphics processing unit) company that has been producing high-end graphics cards for years. They also offer solutions for media and communications processors (MCPs), handheld GPUs, and consumer electronics. After being in constant competition with AMD, 3dFX and STMicroelectronics, NVidia has effectively beaten its competitors and is beginning to see most of the workload in the graphics industry. Recent trends in increasing processing capabilities has decreased the demand for so-called “onboard” graphics cards, typically made by Intel, while increasing the demand for chips that can handle more. This is where NVidia comes in.

NVidia is currently seen as overvalued in the market, yet their share price continues to trend upwards. Regardless, we are going to go ahead and consider this company for our stock watch list instead of investing immediately, we want to wait for a more attractive margin of safety. So why is NVidia so attractive to me? Primarily, it has been their outstanding ability to grow capital increasingly year after year. According to market research firm, Jon Peddie Research, “NVDA’s share of the graphics market climbed to 32.6% in the second calendar quarter of 2007.” This is up from a 19.7% gain just one year earlier. What makes this news especially intriguing is that the growth has come at the expense of both Intel, who is losing their leads in integrated graphics, and AMD, who have all but lost the race to produce the faster of chips. What this means is that NVidia is seeing less and less competition going down the stretch and have begun to win out in the industry. Recent news includes winning the bid in Apple’s new MacBook Pro laptops, where NVidia’s GPU cards are now being used, a favorable market exposure and higher demand due to the resource-demanding Windows Vista platform and expansion toward use in mobile phones and gaming consoles such as Sony’s Playstation 3 and Microsoft’s XBox 360.

Lets talk numbers. I ran a DCF (Discounted-Cash-Flow) evaluation on the company and found that it is trading over 3-times is projected price! You can find a draft version of my calculated DCF here. This should scare you as an intestor, but sometimes we need to look beyond the estimated sticker price of a company to make a logical investment. After announcing a third quarter lag in sales, the stock was projected to fall, but it rose again anyway. At some point we have to hit a snag, I suggest getting in here. They have no debt and their tax rate has been extremely low at 9.4% (according to most recent 10-K). But what impresses me most is their ROIC (return-on-investment-capital) which is over 29% on the year and averages about 15% over the past five years. This means that what you invest is being used very effectively and the management knows how to grow your investment. NVidia dominates the tech industry with ROA and ROE both over 22%. They have the upper management and predictable growth that we look for in a successful business as well as an ever-widening business moat that all-but guarantees success.

Once the price is right, my gut is telling me to buy. Do your homework on NVDA and you may feel the same.

-The Net Fool

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