1 Huge Takeaway from NVIDIA's Third Quarter

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Last Friday, shares of NVIDIA rose more than 6% after the graphics chip specialist impressed Wall Street with its solid third-quarter report.

NVIDIA's Tegra 4 will power Microsoft's Surface 2

Image source: NVIDIA.

To be sure, there was a lot to like about NVIDIA's overall results, which included in-line revenue of $1.054 million and adjusted earnings of $0.26 per share. By contrast, analysts were modeling earnings of just $0.19 per share on the same basis. 

What's more, NVIDIA also boosted its quarterly dividend by 13% to $0.085 per share, and announced its board has authorized another $1 billion under its stock repurchase program.

For those of you keeping track, that leaves a total of $1.286 billion available for buybacks through the end of January, 2016, thanks largely to the resilience of its core discrete GPU business, which fell just 1.9% year over year against the widening backdrop of much more significant PC industry declines. All told, riding on the back of record sales from its Quadro and Tesla workstation and server products, NVIDIA's GPU segment in Q3 still accounted for a whopping 83% of its entire revenue stream.

But for anyone familiar with today's growth-hungry market, you probably know a smaller-than-expected decline in NVIDIA's largest business isn't nearly enough to get long-term investors excited.

The single most important thing...
So if you're wondering why the stock popped, look no further than the fact Q3 marked the beginning of NVIDIA's Tegra 4 volume shipments. As a result, even though NVIDIA's quarterly Tegra sales fell more than 54% from the same year-ago period, Tegra revenue more than doubled sequentially to $111.2 million.

Remember, earlier this year, NVIDIA had to make the difficult decision to either release its Tegra 4 as scheduled, or speed up the development of both its fifth-gen Tegra chips (tentatively named project "Logan") and the Tegra 4i, which itself stands proud as NVIDIA's first fully integrated LTE chip aimed at the mobile market. Personally, as a patient investor myself, I'm thankful NVIDIA took the long-term view in choosing to delay the Tegra 4, the fruits of which we're finally beginning to see now.

NVIDIA's Tegra 4i targets the smartphone market, Tegra 4 will power Microsoft's Surface 2 tablet
NVIDIA's Tegra 4i. Image source: NVIDIA.

What's more, NVIDIA CEO Jen-Hsun Huang also confirmed during the company's subsequent earnings conference that the Tegra 4i has officially competed its certification process with AT&T, which bodes well for NVIDIA's goals of further penetrating the mobile connected device market in 2014.

But it's also worth noting none of this should have come as any big surprise. After all, during last quarter's conference call, NVIDIA management told investors each of these milestones would occur in the near future. In addition, back In September, NVIDIA announced three fairly significant Tegra 4 placements, with the first in China-based Xiaomi's Mi3 super-phones, the second in its own $199 Tegra Note tablet platform, and the third in Microsoft's latest Surface 2 series tablets.

Then again, while Xiaomi did manage to sell more than 10 million of its Mi2 series smartphones in the first 11 months after its release, it remains to be seen what kind of reception NVIDIA's Tegra Note platform will have. And Microsoft, for its part, only sold 1.5 million of its Surface RT tablets in the first five months following its release late last year -- hardly encouraging for the prospects for Microsoft's Surface 2, but NVIDIA will take anything it can get while Tegra 4 is gaining traction.

In the end, though, the fact remains that Tegra 4 is officially rolling, and investors have renewed confidence in NVIDIA's ability to take part in the multibillion dollar revolution that is the mobile industry. Don't get me wrong; NVIDIA still needs to prove it can sustain Tegra's momentum going forward. But I'm convinced it'll just take time to prove how well-positioned the company really is.

Until then, with shares currently trading at just 17.3 times last year's earnings -- a multiple which falls under 12 when you back out its $3 billion in cash -- I have no problem enjoying NVIDIA's massive share repurchases and collecting that newly raised dividend.

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NVIDIA may not be powering Apple's newest iPad Mini with Retina display, but that doesn't mean it'll be easy to come by this quarter given all the reports of supply constraints. Well, we're going to be sure to get a few -- and give them away! That's right: For the first time ever, The Motley Fool is hosting a contest where you can win a free iPad Mini with Retina display. All you have to do is tell us why you love The Motley Fool by clicking here! We'll pick the three most Foolish submissions to receive a free iPad Mini with Retina display.

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The article 1 Huge Takeaway from NVIDIA's Third Quarter originally appeared on Fool.com.

Fool contributor Steve Symington owns shares of Apple and NVIDIA. The Motley Fool recommends Apple and NVIDIA. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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