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Hunter ChangSenior Analyst

Ezequiel LinaresSenior Analyst

Ishaan MadanJunior Analyst

Samuel KimJunior Analyst

May 2016

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A secular trend away from CPU (central processing unit) marks the “retirement of Moore’s Law”, and a shift in the semiconductor industry towards the burgeoning demand for GPU chips (graphics processing unit). Sectors ranging

from AI to sports VR are on the verge of being fully dependent on GPU chips.

S&P 500: NVDA

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AgendaI. Investment Thesis

II. Industry Overview

A. Market Drivers

B. Competitors

III.Company Overview

A. Company Background

B. Revenue Background

C. Catalysts

D. Risks

IV. Valuation

A. Comparable Company Analysis

B. Discounted Cash Flow Analysis

V. Conclusion

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Investment Thesis1Yr Price Target: $126.03

1. Upcoming Partnerships

NVIDIA is currently undervalued at $103.47 a share. Our recommendation is to buy and holdfor at least 18 months in order for the the market to adjust to reach the $126 price target (20% upside).

NVIDIA has recently secured partnerships with Facebook and IBM to make AI available to both developing businesses and consumers.

1. Apple also recently dropped Qualcomm and is in search of a GPU provider.2. AMD’s revenue and market control has been steadily declining for the past 5 years and

released a 7.5% drop in revenue in their May 1st earnings report.2. Competition Struggling

The efficiency of a GPU is unparalleled when compared with market-standard CPU. Secular market shift will be recognized by businesses and consumers and realized in the market in the short term.

3. Secular Market Shift

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CPUsProduct Description

Single-function processing units, implemented in almost every top-of-the-line computer and smartphone. Old

technology- limiting advances in industry.

Intel - 79.80%

AMD - 20.20%

GPUsProduct Description

Parallel-function processing units, becoming extremely relevant in virtual reality, artificial intelligence, and

predictive analytics.

Top Players

NVIDIA - 70.5%

AMD - 29.5%

Semiconductor Industry - $335.0 Billion

5

Industry Overview

Figures from WCCFTech

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Market Drivers

Growth of VR products in both the commercial and sports industry

Major advances in AI and Machine Learning

Increased demand for autonomous vehicles

GPU

s

NV

IDIA

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Market Cap

$12.52B

$62.01B

$79.40B

Description• Founded in 1969• Specializes in consumer computer CPUs and GPUs

• Few entry-level server solutions

• Founded in 1993• Specializes in GPUs for big data processing and AI training

• Top-notch graphics cards for consumer gaming

• Founded in 1985• Specializes in hand-held CPUs and GPUs

• No presence in AI or big data processing

Big Partners

AcerHPDell

IBMSamsung

VW GroupFacebook

AsusTesla

GoogleCiscoDell

SamsungLG

Sony

HTCGoogle

Motorola

Competitors

Figures from Yahoo Finance

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Company Background● NVIDIA specializes in high-power Graphics Processing Units

(GPUs), for both Big Data computation and consumer usage.

● It stretches across multiple markets, including supercomputing

(NVIDIA Tesla), GPGPU system infrastructure management, top-

notch graphics cards for consumer PCs, and artificial adaptive

analytics, including machine learning and autonomous vehicles.

NVIDIA’s founder and CEO, Jensen Huang, has

led the company to $6.91 billion in 24 years of

operation.

NVIDIA’s CFO, Colette Kress, has 13 years of CFO

experience at Microsoft, along with 3 years of CFO

experience at Cisco, before coming to NVIDIA in

2013.Figures from the NASDAQ and NVIDIA

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Gaming

$4.1B (59.3%)Graphics Cards and processors for

consumer gaming consoles/PCs

Data Centers/Cloud Computing$830M (12%)

Hard/Software used in Data Centers to create AI-fueled computation

Automotive

$127M (1.8%)Autonomous driving chipsets used in next-

generation automobiles and trucks

Professional Visualization$189M (2.7%)

Processors (mainly GPUs) available for use over the internet, licensed by big data

companies9

Revenue Breakdown

Figures from NVIDIA’s FY2017 Q4 10-K

9

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Qualcomm’s partnership with Apple recently fell through leaving Apple with a newfound demand for a GPU supplier.

NVIDIA is announcing a partnership with Facebook, and releasing their quarterly earnings at their GPU conference from May 8th-11th. The partnership is to build an open-

source deep learning framework.

IBM looking to use NVIDIA chipsets (GPGPU-Tesla) in their cloud network for AI learning and computing

(IBM’s cloud is used by 47 of 50 Fortune 500 companies).

Catalysts

20% upside of NVDA stock in the next 18

months

Information from NVIDIA, PCWorld

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RisksRisks

Competition

Google rumored to enter GPU

market for self sustenance

Intel beginning production of GPU chips for

gaming community

AMD is rumored to release their

VEGA GPUs for consumer

use

Applicationof GPUs

Ubisoft (Pascal GPU)VW GroupTesla Motors

(DRIVE)

Info from PCWorld, WIRED

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Company Market Cap EV/EBITDA Forward P/E BETA PEG P/BV

NVIDIA $62.01 27.28 30.86 1.48 3.14 10.59

AMD $12.52 -52.15 45.86 3.08 -1.73 29.62

Qualcomm $79.40 9.2 11.46 1.51 1.08 2.53

Intel $170.54 7.74 12.38 1.11 1.64 2.55

Median $70.71 8.47 21.62 1.50 1.36 6.57

Mean $81.12 -1.98 25.14 1.80 1.03 11.32

Comparable Company Analysis

Figures from NYU Stern, Yahoo Finance

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Discounted Cash Flow Analysis

Revenue Growth Rate: 20%Cost of Sales % Margin: 40%

Figures from SEC 10-K, NYU Stearn, Yahoo Finance

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Discounted Cash Flow Analysis (Cont.)

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Discounted Cash Flow Analysis (Cont.)

Bearish Case: ($119.63)(14% Upside)

WACC: 10.6%Perpetuity Growth: 2.9%

Base Case: ($125.92)(20% Upside)

WACC: 10.3%Perpetuity Growth: 3%

Bullish Case: ($145.51)(38% Upside)

WACC: 9.4%Perpetuity Growth: 3.1%

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Conclusion

GPU chips are the future of computing technology.

NVIDIA presently has major leads in supercomputing, AI, GPGPU infrastructure management, VR and automotive technologies.

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Appendix A

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Appendix B