Bull Of The Day: NVIDIA (NVDA)

·5 min read

NVIDIA NVDA, the largest semiconductor innovator in the US, has been one the best performing equities of the past decade, having skyrocketed over 5,500% in the past 10 years as this GPU pioneer and its visionary leader, Jensen Huang, take the chip market by storm.

NVIDIA is the most exciting chipmaker in the market today, producing chips with unmatchable capabilities that have transformed this business into the superstar it is today. The level of growth that NVIDIA has achieved is nothing short of incredible as the enterprise sets the bar for innovation in tech.

This GPU powerhouse has been able to justify its exceptionally rich 57x P/E multiple with consistently outsized profitable growth that has driven between 40-70% year-over-year sales appreciation in the past 7 consecutive quarters (flowing down to high double to triple-digit net income expansion), along with record top and bottom-line results in each of the last 6 earnings releases.

The company is playing a critical role in the development of machine learning and artificial intelligence (AI). NVIDIA's rapidly advancing datacenter chip technology will almost unquestionably be a part of the discovery of "true AI" (machines that surpass human intellect) in the coming years/decades (many hypothesize that this will occur by 2050).

Analysts are relentlessly bullish on NVDA as the company consistently blows out estimates each quarter. Sell-side analysts have been pushing up their EPS projections over every time horizon, propelling NVDA into a Zacks Rank #1 (Strong Buy). This is a stock you want exposure to as we enter the 4th Industrial Revolution.

The Business

NVIDIA has become the most cutting-edge chipmaker in the world today. The company invented the graphics processing unit (GPU), initially purposed for rendering images, but now possesses capabilities beyond graphics cards. NVIDIA's hyper-fast GPUs are becoming a necessity in datacenters specifically for the function of developing deep learning and artificial intelligence (as I mentioned above). 

Datacenters are going to be king in a world headed towards cloud computing, and Nvidia's hyper-fast GPUs are becoming a necessity. CEO and founder of Nvidia, Jensen Huang, said in a recent press release that "NVIDIA AI is enabling breakthroughs in language understanding, conversational AI and recommendation engines ??? the core algorithms that power the internet today. And new NVIDIA computing applications in 5G, genomics, robotics, and autonomous vehicles enable us to continue important work that has great impact." 

NVIDIA completely controls the datacenter GPU market with no close competitors (despite AMD's attempts). This company is crucial to the discovery of true AI, which will be an inflection point in human understanding. NVDA chips can already be found in 8 of the top 10 supercomputers and 2/3rd of the top 500. 

Nvidia is also leveraging 5G with its anticipated cloud gaming platform. Just as cloud computing is the future of business data and analytics, cloud gaming is the future of gaming. NVIDIA is making a big bet in this field with its cloud platform, GeForce NOW. This platform allows gamers to use their Macs or PCs for gaming anywhere with NVIDIA's GPUs' high-speed, low-latency technology without needing NVIDIA's hardware locally. 

Nvidia's Recent Acquisition Announcement

Nvidia announced it would be acquiring Arm Limited from Softbank SFTBY in an all-stock deal for $40 billion back in September of last year with a closing timeline of 18 months. If this deal goes through, it will be the largest chip deal in history, but first, it must get past the 3 major regulatory authorities, including China, which could pose a challenge amid the reheating US-China trade war. 

Regulatory bodies are delaying this deal, which catalyzed the recently added concessions NVIDIA offered to appease EU regulators in the hopes of securing the necessary antitrust approval, which pushed ths deal's value up to $54 billion. The merger was originally expected to close in March of 2022, but that is beginning to look like an aggressive timeline considering pushback from regulators in the UK and China.

Nvidia's announced acquisition would significantly expand the enterprise's chip market control. Nvidia now primarily focuses on GPUs and is leveraging the technology's hyperfast computing power to develop "true AI." The purchase of Arm will give Nvidia a firm grasp on the CPU market and provide the combined company with a whole leg in the smartphone market door. 

This AI-juiced semiconductor powerhouse and its visionary CEO, Jensen Huang, have proven that Nvidia is a force to be reckoned with. Softbank's leader, Masayoshi Son, and his close ties with Huang catalyzed this ostensible "value deal" for Arm.

This deal includes a significant amount of NVDA stock, which I believe is a big part of the reason that Son is so excited about the sale. He believes in Nvidia with Jensen Huang at the helm and wants to see his transform this business into and wants to be a part of the action. 

If this deal does end up getting rejected, it would not be the end of the world for NVDA, as its current portfolio outlay is still poised for prolific growth. It would also mean that no other company could acquire Arm Holdings moving forward. Either way, NVDA wins.

Final Thoughts

NVIDIA is a stock that I believe every investor should have some exposure to. The stock is trading at a very frothy market valuation ($556 billion market cap) and could be subject to short-term volatility because of this. However, if you bought this today and forgot about it, I am confident that you would be blown away by how much it has yielded you in the next decade or even just the next few years. 

NVDA is currently trading over 6% below its average short-term price target and 35% below its most optimistic target. 23 out of 26 analysts are calling this a buy right now, and I couldn't agree more. 


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