NVDA Stock: Due Diligence – SEC Filings – Risk Factors

NVDA Stock – What Investors Should Know About NVIDIA Corporation

NVIDIA Corporation (NVDA Stock) designs and manufactures computer graphics processors, chipsets, and related multimedia software serving the PC gaming market. Graphics, Computation & Networking are the market primary segments the company serves. The graphics processing unit includes GeForce for gamers and Quadro for designers.  Also, Tesla and DGX units are for AI data scientists and prominent data researchers, and GRID is for cloud-based visual computing users. Jen Hsun Huang, Chris A. Malachowsky, and Curtis R. Priem founded the company in January 1993, and it is headquartered in Santa Clara, California.

The Tegra Processor segment incorporates GPUs and multi-core CPUs to power supercomputing.  Applications include autonomous robots, drones, and cars, as well as consoles and mobile gaming and entertainment devices.

 NVDA Stock: Annual Reports – Financials – SEC Filings

Nvidia Corp (NVDA Stock Ticker) is incorporated in the state of Delaware. Nvidia Corp is primarily in the business of semiconductors & related devices. For financial reporting, their fiscal year ends on January 30th. This page includes all SEC registration details as well as a list of all documents (S-1, Prospectus, Current Reports, 8-K, 10K, Annual Reports) filed by Nvidia Corp.

Nvidia is a leading designer of graphics processing units that improve the computing experience. The company’s chips are used in a wide range of applications.  For example, high-end gaming PCs, data centers, and automotive infotainment systems. In recent years, the company has shifted its focus away from traditional PC graphics applications like gaming.  Instead, moving toward more complex and lucrative opportunities like artificial intelligence and autonomous driving.  These newer applications take advantage of the high-performance capabilities of the company’s graphics processing units.

 NVDA Stock – Risk Factors

Positive Factors

• Earnings Forecast – Earnings are forecast to grow 25.13% per year
• Historical Earnings – Earnings have grown 25% per year over the past 5 years

Negative Risk Factors

Third-Party Technology

The company relies on third parties and their technology to manufacture, assemble, test, package, or design its products.  This limits control over product quantity and quality, manufacturing yields, product development, enhancement, and delivery schedules.  Ultimately, this reliance could harm the business. NVIDIA does not produce the semiconductors used in its products.  Nor, does it own or operate a wafer fabrication facility. As a result, the company relies on foundries to produce semiconductor wafers using their fabrication equipment and techniques. NVIDIA does not assemble, test, or package products themselves.  Rather, the company hires independent subcontractors to do so. Moreover, third-party software development tools are used to help with the design, simulation, and verification of new products or product enhancements.

Supply Chain Risk

There is constant pressure on design requirements to meet consumer demand for more functionality from products.  Customer functionality expectations may exceed the capabilities of currently available software development tools. The company makes long-term supply and capacity commitments.  Yet, it may not be able to secure enough capacity commitments to meet business needs. NVIDIA faces a number of risks that could jeopardize its ability to meet customer demand and scale its supply chain. This could have a negative impact on longer-term demand for products and services.  It could also negatively impact business operations, gross margins, revenue, and/or financial results.

International Operations Risk

The company is subject to the risks and uncertainties that come with international operations.  Adverse economic conditions could harm the company’s operations and financial performance. NVIDIA conducts business and has offices all over the world. Third parties located outside of the United States manufacture, assemble, test, and package its semiconductor wafers.  The company generated 84% of its revenue for the fiscal year 2022 from sales outside of the United States. This global nature exposes the company to a number of risks and uncertainties.  In turn, these conditions could have a material adverse effect on its business, financial condition, and operating results.

Defects – Malicious software attacks – Warranty Risks

If products have significant flaws, the company may incur significant costs to correct them.  Moreover, the company’s reputation may suffer, and it may lose market share. NVIDIA’s hardware and software product offerings are complex.  As a result, they may contain flaws or security vulnerabilities.  Or, they may fail to perform adequately due to a variety of issues in design, fabrication, packaging, materials, or use. As products are introduced into new devices, markets, technologies, and applications, or as new versions are released, these risks may increase. Some errors in products or services may not be discovered until after they have been shipped or used.

Undiscovered flaws in products or services may expose end users to unscrupulous third parties who develop and deploy malicious software programs that could attack these products or services. Defects or failure to perform to specifications could result in significant damage to the products or the product into which our device has been integrated. Any such defect may result in significant warranty, support, and repair.  Or, replacement costs as part of a product recall or otherwise, as well as a write-off of the value of related inventory.  Moreover, it would divert the attention of engineering personnel from product development efforts to find and correct the issue.

Continued Brand Acceptance

After commercial shipments begin, an error or defect in new products or releases, or related software drivers, could result in failure to achieve market acceptance.  This could result in a loss of design wins and harm relationships with existing and prospective customers and partners.  Also, consumers’ negative perceptions would have an impact on business operations, gross margin, revenue, and financial results. Moreover, the company may be required to reimburse customers, partners, or consumers for costs incurred in repairing or replacing products in the field. Facing a product liability claim, the cost of defending the claim could be significant.  Moreover, it would divert the efforts of technical and management personnel and harm business. Furthermore, commercial liability insurance may be insufficient.  Or, future coverage may be unavailable on acceptable terms.  Any of these factors could have a negative impact on financial results.