The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First. 

Nvidia Stock Forecast

Summary:

• Contrary to previous rumors, Nintendo’s next console product, the Switch is not using a processor/GPU from Advanced Micro Devices
• Nintendo decided to use a custom Tegra processor from Nvidia for its new Switch home gaming system.
• AMD used to supply the custom GPU/CPU chip for Nintendo up until the Wii U console. The Switch win is therefore a big deal for Nvidia.
• The hybrid handheld/dongle Nintendo Switch is a disruptive product that could sell tens of millions of units.
• NVDA has buy signals based on its near and long-term algorithmic forecasts.

Last week’s announcement that Nvidia (NVDA) will supply the custom CPU/GPU chip for Nintendo’s (NTDOY) was big surprise. It was rumored before that Advanced Micro Devices (AMD) will again supply its custom chips inside Nintendo’s next generation gaming console. Nvidia winning the right to supply the custom CPU/GPU for the upcoming Nintendo Switch is therefore a big deal.

The Nintendo Switch is a unique product and it could be an important catalyst for Nvidia. The Tegra-powered Switch could be attached to a large TV display and it could be played handheld like Nvidia’s Shield Portable.

(Source: Nintendo)

Long-term investors should consider going long on NVDA now. Nvidia has long-term benefits from breaking the monopoly of AMD on console-specific processors. Up to the Wii U, AMD used to be the go-to supplier for Nintendo gaming consoles.

Other Gaming Systems Maker Could Also Switch To Nvidia Tegra

Going forward, the unexpected switch to a Tegra chip could help Nintendo compete better with the PlayStation 4 and Xbox One. Furthermore, Nintendo’s act of abandoning AMD in favor of Nvidia may influence the future decisions of its console rivals Sony (SNE) and Microsoft (MSFT).

It is projected that if the next Nintendo gaming device comes with a custom Tegra X1 it will still be slower than the PlayStation 4 or Xbox One. However, Nvidia has been teasing the new Tegra X2 Parker System-on-Chip. The Nintendo Switch might come equipped with a customized and more powerful Tegra X2 Parker. It will be portable and yet competitive enough against the PlayStation 4.

(Source: Nvidia)

Unlike Microsoft and Sony’s consoles, the Switch will be portable enough to play while lying down on a couch. This unique advantage could lead to a new hit gaming device for Nintendo. The more Switch units that Nintendo sells, the better it will be for Nvidia’s Tegra business.

Switch Could Become As Popular As The Nintendo Wii

Like the original Nintendo Wii, the upcoming Switch is an innovative or trend-setting product that could sell tens of millions of units every year. The Switch is a disruptive product that combines the concept of the handheld Nintendo 3DS and the Wii console.

Calculating the economic benefit to Nvidia is easy. My fearless forecast is that Nintendo could sell 20-30 million units of the Switch next year. If Switch will retail for $299 to $399 next year, we can guesstimate that Nvidia will probably charge $25-$50 for every custom Tegra.

Let us assume that Nintendo will sell 20 million Shield units every year. We then multiply it with $25 and Nvidia’s potential annual sales to Nintendo could hit $500 million. In essence, Nintendo’s Switch is the much better version of Nvidia’s Shield Portable concept. Unlike the awkward design of the Shield Portable, the Nintendo Switch looks like a large-size smartphone with comfortable slide-in handheld controls.

(Source: Nintendo)

Nintendo has had great success with its portable video gaming systems like the 3DS and the Nintendo DS. My 20 million/year sales estimate for the Switch could even go higher. If Microsoft and Sony doesn’t come up with the same hybrid portable/console concept soon, the Nintendo Switch will likely become next year’s best-selling console.

(Source: Statista)

The uniqueness of the Nintendo Switch has already attracted the support of major game developers and other video games-related companies. The next iteration of the Tegra X1 is already touted to be much faster than Apple’s (AAPL) A9x CPU. I am sure game developers and programmers will have an easy time maximizing the graphics potential of the Nintendo Switch.

(Source: Nvidia)

Conclusion

I added more NVDA in my portfolio because of this Nintendo Switch win. You should too. Due to its uniqueness, the Nintendo Switch will most likely be big hit when it is released next year. The thought of Nvidia garnering new revenue of $125 million/quarter supplying custom chips to the Nintendo Switch is long-term tailwind.

There is also the probability that Sony and Microsoft might come up with their own equalizers to the Switch. They might also use custom Tegra chips. Once the top-3 console makers start sourcing their processor/GPU needs from Nvidia, investors will likely push NVDA’s price to above $52.

NVDA also has obvious go-long signals based on its long-term algorithmic forecasts from I Know First. The machine learning, deep neural network of I Know First apparently agrees with my thesis that the Nintendo console win is a big tailwind for Nvidia.

Analysis of the long-term technical indicators and moving averages are also very positive for NVDA.

(Source: investing.com)

I Know First Past Success With NVDA

I Know First has been bullish on NVDA in past forecasts. On June 22nd, 2016, an I Know First analyst had written a bullish article on NVDA in accordance with our state of the art algorithm. Since then, NVDA has risen by almost 52% to date.

This forecast was sent to current I Know First subscribers on June 21st, 2016. To subscribe now click here.