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What happened
Actions of NVIDIA (NASDAQ: NVDA) gained 23.1% in value last month, according to data provided by S&P Global Market Intelligence. During June, Broadcom, Marvell technology, and MediaTek expressed support for the $ 40 billion acquisition of Arm Holdings by NVIDIA Softbank Group (OTC: SFTBF) (OTC: SOBK.Y). The proposed acquisition is currently making its way through a rigorous regulatory review process, but the vote of support from three of Arm’s customers brings the deal significantly closer to finalization.
This news adds to NVIDIA’s incredible momentum at the moment. It released an excellent earnings report in May, with revenues hitting a record $ 5.66 billion, up 84% year-on-year, and there are no signs of slowing growth.
NVDA data by YCharts
So what
If the Arm deal goes through, which NVIDIA says will happen by early 2022, it will accelerate NVIDIA’s deployment of AI computing in all markets where Arm’s chip architecture is already dominant. in addition to paving the way for NVIDIA’s expansion into new markets, such as bringing AI to the forefront of 5G networks.
Speaking at a conference in June, Arm CEO Simon Segars said, “We can’t do it all on our own, but thanks to the combination with NVIDIA we will have a lot more resources to build a bigger portfolio. rich IP that fuels the delivery of all these upcoming applications. “
Image source: NVIDIA.
Now what
Not all investors are enthusiastic about Arm’s growth potential. NVIDIA is doing very well without Arm, with strong performance in the gaming and data center segments in the last quarter. Current estimates predict that NVIDIA will increase revenue by 49% in the current fiscal year.
NVIDIA is already a leading hardware vendor in the data center market and has entered the networking business with the acquisition in 2020 of Mellanox. But investors are very optimistic about the company’s prospects for expanding into software solutions, which is part of NVIDIA’s mission to democratize artificial intelligence for businesses around the world. On a earnings conference call with analysts in May, CEO Jensen Huang said the company was poised for “years of growth in data centers.”
One analyst expects NVIDIA’s data center operations alone to generate $ 30 billion in annual revenue by 2025. If NVIDIA can achieve this, the stock should have more wiggle room as Data center products offer higher profit margins than other products.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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