The Force Is With NVIDIA

Leading graphic-chip maker, and Motley Fool Stock Advisor pick, NVIDIA (Nasdaq: NVDA) showed it is a force to be reckoned with when it reported fourth-quarter earnings, but an uncertain future gave analysts and investors reason to bid the stock down more than 16% following the release.

While NVIDIA reported a 37% increase in revenue to a record $1.2 billion thanks to its popular GeForce processors, focus was placed instead on a future that includes higher spending and increased competition.

Even a 57% increase in GAAP net income to $257 million and guidance that expects revenue in the next quarter to somewhat buck seasonal declines wasn't enough for Wall Street. With the looming threat of giants AMD (NYSE: AMD) and Intel (Nasdaq: INTC) developing graphics chips integrated with CPUs, investors and analysts worry that growth for NVIDIA's discrete graphics processor units (GPUs) may be threatened.

But NVIDIA CEO Jen-Hsun Huang sees the overall market for GPUs increasing as computing becomes more visually demanding. To maintain its leading position in the market and capture this growth, he said, the company will continue to invest heavily in technology to differentiate itself from very capable competitors.

To augment growth, NVIDIA is looking beyond its core market of high-end GPUs in desktop and laptop computers. One area that is a small part of NVIDIA today, but could be a large source of revenue in the future, is processors for smartphones.

Coinciding with NVIDIA's earnings release, the company was showing a new applications processor at the Mobile World Congress in Spain that includes a high-definition graphics engine alongside an ARM (Nasdaq: ARMHY) processor core.

Today, NVIDIA sells a relatively small number of mobile graphics chips to companies such as Motorola (NYSE: MOT). But thanks to the glamour of the Apple (Nasdaq: AAPL) iPhone, the company expects smartphones -- and the demand for rich graphics on them -- to make up a larger portion of the market in the future.

While competitive pressure remains tough on NVIDIA, the company knows where it can succeed with significant advantages over alternatives. Huang has consistently shown he is well in tune with where the market is heading. So while the dark side clouds everything, and as impossible it is to see the future, this Fool still sees NVIDIA's destiny filled with ample growth opportunities.