Nvidia: Cantor Starts at Buy on ‘WARM,’ Soft Radio Prospects

Cantor Fitzgerald‘s Daniel Gelbtuch this afternoon initiates coverage of chip maker Nvidia (NVDA) with a Buy rating and a $20 price target, writing that the company will be “a primary beneficiary of numerous disruptive technology trends.”

Those trends include the mobile market, where the company’s “Tegra” processor is continuing to dominate the non-iPad tablet market, in his view, and is “gaining smartphone momentum,” he writes. He sees a boost for the company’s Tegra 3 processor later this year with new models in both product categories.

In addition, the advent of computers using processors derived from ARM Holdings (ARMH) designs, including Nvidia’s, and running Microsoft‘s (MSFT) “Windows 8,” referred to as “Windows on ARM,” or WARM, should be a “boon” for the company:

Microsoft�s ramp of Windows on ARM (e.g., on a Tegra) could potentially be a huge positive catalyst for NVIDIA over the next two years. We believe the launch of MSFT�s Windows 8 (2H:CY12) and the concurrent availability of Windows 8 on ARM (along with integrated Office) could decisively break the �WinTel� cartel, due to the disruptive power and cost savings of ARM-based RISC processors. Until WOA�s arrival, Windows operating systems could only be run on PC/Laptops that were powered by x86 CPUs (made by Intel and AMD). The arrival of WOA could be a major boon for NVDA, whose ARM-based Tegra APs would be optimized for WOA-driven devices. WOA-based laptops could provide all the desired, and currently available, mobile computing functionality, at dramatically lower price points and extended (18+ hours) battery charges.

Some bears think that “ultrabook” laptops will erode Nvidia’s sales of standalone “graphics processing units,” or GPUs, using instead integrated graphics from Intel (INTC). But the opposite is true. For one thing, sub-13-inch ultrabooks won’t be counted in industry “attach rates,” so they’ll have no impact on reported market share, he opines. And in fact, for the category to succeed, it may need Nvidia’s chips:

We believe the Ultrabook category will be quite successful only if it can lower its price point to $599 and below, something that might be best accomplished via a low-cost WOA platform (plays into NVDA�s core competency) and/or a GPU-only-based platform.

In fact, Nvidia can look forward to its recently introduced “Kepler” GPUs getting a lift from the roll-out of PCs with Intel’s “Ivy Bridge” processor this year.

Short-term issues, moreover, such as a lack of adequate manufacturing capacity at 28 nanometer, “have been resolved,” he writes, based on his “checks” of the matter.

Lastly, the movement to “software-defined” baseband wireless chips could be a boon as well, for Nvidia, in the mobile market:

While QCOM will likely continue to dominate the nascent 4G-LTE baseband market (with its SnapDragon S4 baseband-integrated AP) over the next 12-18 months, we believe NVDA�s integration of a 4G radio into Tegra could drive material share gains in CY:13 and beyond.

For this year, Gelbtuch is estimating $3.9 billion in revenue and EPS of 68 cents per share. That compares to the consensus of $4.12 billion and 67 cents.

Nvidia shares closed down 43 cents, or almost 3%, at $14.65 today and were unchanged in late trading.