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Wednesday, September 06, 2006

NVIDIA's Double (NVDA)

The shares of NVIDIA have moved off their 52-week low of $14.92 and now trade at $28. Not a bad return for a year. To top it off Friedman Billings Ramsey upgraded the stock to "outperform" from "underperform". It looks like the company skipped "marketperform" completely. Like going from grade school to college in a day.

NVDA financial performance has been excellent. In the quarter ending April 30, revenue hit $682 million, higher than any of the immediately previous three quarters. Operating income was $101 million.The company is sitting on $950 million in cash and short-term investments. The company has a market cap of $9.8 billion.

According to MarketWatch part of the theory behind the rise in the shares is that NVDA chips will need to run in more PCs as manufacturers upgrade to Microsoft Vista.

NVDA does have an options dating issue, but that does not seem to hurt its shares. As Merrill Lynch pointed out in a research note picked up by the Associated Press, the options issue could have a tax consequence. Also, since most of the company's top people have been with the company for years, if there is an options issue, they may be hurt.

Graphics processors from NVDA are going to find a larger market in PCs in the next year or two. With Vista launching next year, it is a good bet that NVDA's revenues should rise.

But, the options problem could slam the company and its most senior people. On that basis, the company's shares may be expensive.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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