Last week when Tesla formalized their relationship with NVIDIA, something we had already assumed into NVDA's stock price when TSLA parted ways with MobilEye, there was happiness among the longs that we didn't join.
Some analysts were forecasting as much as a billion bucks of revenue to NVDA but we have to caution: until Tesla proves it will be able to raise the cash they need, by actually, well, raising the cash, there is a greater than trivial chance that the illiquidy forces Musk's baby into a reorg.
And then this week we got the gaming news with Nintendo's Switch which may set up a 5% bump in revenues going forward but doesn't address the key market opportunity driving the stock: Artificial Intelligence.
And we won't know how that's going until next week.
In the meantime here are the stories of the past few days.
From Investopedia, Oct. 20:
Nvidia Could Make $1B From Tesla's Self-Driving Decree: Analyst (TSLA, NVDA)
NVIDIA Corp. (NVDA) is the unlikely winner of Tesla Motors Corp.’s (TSLA) decision to equip all cars in production with hardware required for self-driving. (See also: Tesla Announces Self-Driving Hardware For All Cars In Production).And from Barron's Tech Trader Daily:
According to Mizuho Securities analyst Vijay Rakesh, Tesla’s decision could translate into an additional $25 million to $1 billion per year in revenue for the chip company, based on Tesla’s current production estimates and the type of chipsets it uses. The Drive PX chipsets made by Tesla retail for between $250 to $300. Assuming a production estimate of 90,000 cars, this could mean $25 million for Nvidia.
If Tesla decides to go with the more expensive Titan GPU (which retails for $1200 per chip), then the same figure bumps up to a billion dollars. However, Rakesh states that addition of 2-4 Titan GPUs per Model 3, which is expected to cost $35,000, might prove to be “price exorbitant” for Tesla.
Tesla announced the addition of self-driving hardware equipment for all cars in production during a conference call yesterday. The Palo Alto-based car company also said that the eventual goal was to make a road trip from New York City to Los Angeles using self-driving car technology.
Tesla’s decision to go with Nvidia technology follows its rift with previous supplier Mobileye NV (MBLY). (See also: Tesla Fires Back At Mobileye Accusations). According to a report in online publication Electrek, the company has been experimenting with Nvidia’s parallel computing platform to develop Tesla vision, an end-to-end computer vision framework that enables detection, processing, and learning from raw images in surroundings....MORE
Nvidia Surges: Jefferies Sees $320M Per Year in Nintendo’s ‘Switch’
Following word last week that chip maker Nvidia (NVDA) will sell parts that power Nintendo‘s (NTDOY) new “Switch” video game system, Jefferies & Co.’s Mark Lipacis today pounded the table for shares of Nvidia, reiterating his Buy rating, and his $80 price target, after concluding the new machine is worth as much as $320 million a year for Nvidia.The market is looking for record earnings to go with the record stock price and any perception of failure to meet expectations, whether justified or not, could set up a tumble.
To put that in perspective, Nvidia is projected to make total revenue of $6 billion this fiscal year ending in January.
Nvidia shares today closed up $3.17, or almost 5%, at $70.71.
“We estimate this to be a $200-$320m annual opportunity for NVDA near term,” writes Lipacis of the Switch.
“While the incremental dollars would likely be margin dilutive, we view upside potential to our sales and EPS estimates of $0.11-0.16 in 2017.”
Lipacis gives the rundown of Nvidia’s work on Switch:
It appears that the Switch will be powered by an NVDA Tegra processor. NVDA created new gaming APIs to take full advantage of the custom software on the device. NVDA stated that gameplay is further enhanced by hardware-accelerated video playback and custom software for audio effects and rendering. We suspect the processing performance will be lower than the Sony PlayStation or the Microsoft Xbox. NVDA’s expertise in providing high-performance graphics should help boost gameplay as well as demand for the hybrid console.
This is an outgrowth of Nvidia’s “Shield” game console, which had mixed success: “NVDA’s history in a mobile gaming form factor dates back to its SHIELD product, originally launched in 2013....MORE
We continue to bet on one of the class acts of Silicon valley but investors have to know what they have here and unless they are willing to ride a 20% down move to get to greater