Shares of chips giant Nvidia are trading above $700 per piece in June, which means the company’s valuation has practically doubled in the past 12 months. Since the beginning of the year, Nvidia stock price is up 35% compared to gains of 7.1% in the tech-heavy Nasdaq Composite.
Here we discuss some key drivers behind the stellar performance of Nvidia’s shares in the past year.
Strong Quarterly Earnings
In the final week of May, Nvidia reported its Q1 revenue jumped 84% compared to last year. The tech firm generated sales of $5.66 billion to top the $5.51 billion expected from market analysts. Earnings per share came in at $3.66 to again top the Wall Street consensus of $3.28.
“We had a fantastic quarter, with strong demand for our products driving record revenue,” said Jensen Huang, founder and CEO of NVIDIA, before adding that the “adoption of NVIDIA computing platforms is accelerating” across industries.
The company reported strong results across the board to continue riding the wave of sustained and massive growth in its core chip business. The business’ GPU products from cryptocurrency miners and gamers have been in such high demand that shares of the company closed 88% higher in the last year.
Nvidia guided to revenues of $6.30 billion during the fiscal-2022 second quarter. It might sound optimistic, but there is nothing unrealistic about it considering the company earned $5.66 billion in revenues in the first quarter that is 84% more than the previous year.
Expectations the Arm Deal Will Be Approved
Shares of the company also received a boost last year when the company announced the acquisition of the chip designer Arm in a business deal worth $40 billion. At the Computex conference in Taipei, Huang said he does not doubt the UK regulators will be on board about the Arm acquisition.
He explained that the companies are complementary, and as a result, innovations will happen. In an April Public Interest Intervention Notice (PIIN), the UK regulators stated they would consider Nvidia’s takeover of Arm on “national security grounds.”
British digital minister Oliver Dowden issued a statement:
“Following careful consideration of the proposed takeover of Arm, I have today issued an intervention notice on national security grounds. As a next step and to help me gather the relevant information, the U.K.’s independent competition authority will now prepare a report on the implications of the transaction, which will help inform any further decisions.”
An Nvidia spokesperson said the company didn’t think the transaction posed any material national security issues.
The Japanese corporation SoftBank acquired Arm for $31 billion in 2016. Nvidia made a deal to pay around $40 billion for the company and will pay SoftBank $2 billion no matter how the deal goes down.
Analysts Bullish on the Outlook
With these kinds of outstanding earning reports, it should come as no surprise that Nvidia has gained analyst support from many Wall Street firms. The stock’s trailing 12-month P/E ratio is 76.9. NVDA stock’s 52-week range is $347.10 to $676.62.
Once again, Piper Sandler didn’t change its “Buy” rating, and the price target was raised to $690. Wedbush also stayed with its “Outperform” rating and raised its price target to $700. Evercore did the same and raised its price target to $750.
It is important to emphasize that even though Nvidia stock might seem expensive, it actually might be a complete steal at this moment. In May, the NVDA stock soared by about 10% after the tech company announced its first stock split in 14 years. This will make the stock cheaper and more affordable for emerging retail traders.
It is understandable why some investors might be hesitant with these prices since the rule is to buy low, sell high, and Nvidia shares aren’t exactly considered cheap for many. This explains why dip buyers might want to wait out this round until the next share-price pullback.
Still, long-term investors are confident about the stability of the company. Nvidia is referred to as the pioneer among video game graphics processing unit (GPU) manufacturers. Famous as a fabless chipmaker, the multinational technology company plans to expand into artificial intelligence (AI) enhanced chips, which can be used in data centers, supercomputers, driverless cars, and other applications.
And just recently, in February, Nvidia announced the release of new chips for mining cryptocurrency, the CMP. According to the company’s CFO Colette Kress, the CMP sales totaled $155 million in first-quarter fiscal 2022 earnings.
It seems like Nvidia is swimming strong in the crypto chip market. Despite the turbulent crypto prices, Kress confirmed that CMP sales are unaffected. About $400 million are expected to pour in from the company’s CMP segment.
It looks like shares of Nvidia aren’t planning to stop marching higher. From the fundamental aspect of the story, Nvidia’s momentum cannot be denied. The company’s business is booming and the unprecedented demand for chips is likely to keep supporting the financials of the company in the coming years, which should then translate into sustained gains in Nvidia stock price.
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