Why Shares of NVIDIA Corp. Surged 64% in 2015

By Markets Fool.com

What: Shares ofNVIDIA soared in 2015, rising by 64.4%, according toS&P Capital IQdata. All of these gains came in the second half of the year, driven by NVIDIA's strong earnings despite a weak PC market.

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NVDA data by YCharts.

So what: In May, NVIDIA reported mixed first-quarter earnings, providing revenue guidance that was well below expectations. NVIDIA's actual second quarter results, reported in August, blew past this guidance, with GPU sales rising by 9% year over yeardespite global PC shipments slumping 11.8% during the second quarter.

These strong results sent the stock soaring, and NVIDIA's third-quarter results were just as strong. GPU sales rose by 12% year over year in the third quarter, and NVIDIA's revenue and earnings came in well ahead of analyst expectations. The PC market remained weak, with shipments falling by 10.8% year over year, but this had no discernible effect on NVIDIA's gaming GPU business.

One thing helping NVIDIA perform well despite a weak PC market was market share gains at the expense of rival Advanced Micro Devices . Prior to late 2014, NVIDIA had maintained a roughly 60% share of the discrete graphics card market. The company's share had risen to around 80% by the middle of 2015, driven by NVIDIA's disruptive Maxwell architecture and AMD's lack of competitive products at the high-end of the market. AMD finally launched new graphics cards in June of 2015, but the damage had been done.

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Now what: With the same kind of market share gains unlikely to occur in 2016, and with NVIDIA stock trading for 25.6 times trailing-12-month earnings after backing out the company's net cash, NVIDIA's earnings may need to catch up to its valuation. The company has a variety of growth initiatives, including Tesla, its GPU aimed at supercomputers and high-performance-computing, and Tegra, its mobile SoC aimed mainly at automotive applications, but gaming GPUs are still the core of the company. NVIDIA is expected to report its fiscal fourth-quarter earnings in early February.

The article Why Shares of NVIDIA Corp. Surged 64% in 2015 originally appeared on Fool.com.

Timothy Green owns shares of Nvidia. The Motley Fool recommends Nvidia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.