Chipmaker Nvidia (NVDA) is enjoying some of the best possible conditions for a chipmaker right now. An ongoing chip shortage means the current stock is inherently more valuable due to its scarcity.
Between a new console generation, a major new graphics card release, and a host of other conditions, Nvidia was poised for a win. Though some new troubles have emerged for the company, it’s hard to see how these will do much more than put a ceiling on an already-winning company.
I’m bullish on Nvidia, because conditions are just too good to feel any other way. (See Analysts’ Top Stocks on TipRanks)
Looking at Nvidia’s stock charts for the year so far describes a company enjoying not ups and downs, but ups and much faster ups. The company kicked off this year with a solid plateau around $130.
There wasn’t a lot of separation in any direction, up or down. February, however, arrived to break the streak. The company broke $150 for the first time this month, but then lost ground with early March. That’s when the company’s upward trajectory began in earnest. By July, it breached the $200 mark. October took it over the $250 mark. November let it breach $300.
The biggest problem for the company goes back to its plans to buy ARM, the British chipmaker. It’s said to be the largest such deal ever struck between chip producers. Regulators, however, aren’t happy. European Union regulators took aim at the deal, and other countries are following suit.
The EU’s regulators have called a halt to the current investigation as they wait for new information to arrive. However, the U.S. has also stepped in, as the Federal Trade Commission (FTC) filed its own suit against the deal.
Wall Street’s Take
Turning to Wall Street, Nvidia has a Strong Buy consensus rating. That’s based on 24 Buys and two Holds assigned in the past three months. The average Nvidia price target of $360.17 implies 15.2% upside potential.
Analyst price targets range from a low of $285 per share to a high of $400 per share.
A Limiting Factor, Not a Destructive Factor
As bad as it might sound that regulators are landing on Nvidia with both feet, there’s little cause for concern. Remember, the issue at hand here is a planned expansion, not anything Nvidia’s doing normally.
Even if the EU, the U.S., or both at once end up putting the kibosh on Nvidia’s deal, Nvidia will still be a chipmaker. Better yet, the environment is wonderfully conducive to chipmakers right now.
Anyone who’s been trying to buy the newest Xbox or Playstation in the last year knows how hard that’s been. Running into shortages in a new console generation’s early days is nothing new.
For those shortages to continue over a year after release is unheard of. This illustrates the massive demand for chips out there, particularly graphics chips in gaming.
It’s not just about video games, either. Cryptocurrency miners love Nvidia’s systems. We all know what the cryptocurrency market has been like for the last couple of years. The first quarter of 2021 alone saw over 700,000 GPUs shipped to crypto miners.
Nvidia ultimately created a line of processors specifically devoted to mining, and included limiting systems on the gaming-focused cards to help space out some of the demand.
So even if the worst-case scenario kicks in — and some believe that’s only a matter of time — Nvidia will still be selling pretty much everything it produces as it produces it.
Sure, having another chipmaker under its umbrella would have helped it produce more. The loss of potential gains, however, is much different from actual losses. Nvidia won’t lose anything more than what might have been. Oh, and the $2 billion that it had to shell out regardless of how the deal turned out, but that’s a cost of doing business.
Concluding Views
Nvidia’s deal to buy ARM isn’t likely to end well. It’s likely to fall through like lead weights through wet tissue paper.
However, this changes little about Nvidia as we know it. It’s still got several hot products that customers are lining up to buy. Some have even quit their day jobs just to try and land new Nvidia hardware. It’s actually working out better for them than you might think.
That aside, Nvidia is still selling a hot product in a very hot market. The company still has substantial upside potential left to it. The odds of a reversal to the low price targets is pretty remote thanks to the fact that Nvidia’s demand isn’t really seasonal. Nvidia is looking good right now, even at some of the highest prices seen all year.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
