Nvidia’s [NVDA] share price was one of 2020’s standout performers. Gaining circa 120%, Nvidia’s share price benefited from increased demand for its data centre products as more companies migrated to the cloud during the pandemic. The stock’s strong performance was backed up with earnings that have consistently topped analyst expectations.
That said, Nvidia’s share price slumped last Wednesday as the UK’s Competition and Markets Authority (CMA) announced it was preparing to investigate the acquisition of ARM on loss of competition grounds.
The CMA has asked other companies and organisations for their views prior to starting a formal investigation later this year. In a separate investigation, the UK government will look into the deal on national security grounds.
“The chip technology industry is worth billions and critical to many of the products that we use most in our everyday lives,” said Andrea Coscelli, CEO of the CMA. “We will work closely with other competition authorities around the world to carefully consider the impact of the deal and ensure that it doesn’t ultimately result in consumers facing more expensive or lower-quality products.”
"The chip technology industry is worth billions and critical to many of the products that we use most in our everyday lives" - Andrea Coscelli, CMA CEO
ARM’s designs are used in smartphones, laptops and other enabled devices produced by some of the biggest tech companies, including Apple [AAPL], Microsoft [MSFT] and Qualcomm [QCOM], so news of the acquisition has raised more than a few eyebrows. According to investment website Zacks, the acquisition will enable Nvidia to create an ecosystem of products.
Providing the deal makes it through the regulatory wringer, Nvidia’s share price could climb higher in the mid-term, although investors should expect some volatility.
Citi bullish on Nvidia’s share price
While Nvidia’s share price took a hammering at the start of last week, it had managed to recoup most of those losses by Friday, after Citi analyst Atif Malik put Nvidia on a “positive Catalyst Watch”, as reported by The Fly website. Malik expects Nvidia’s share price to perform well during this week’s 2021 Consumer Electronics Show — an annual trade show where the chipmaker will be showing off new products.
Malik also sees potential for “hyperscale-led” data centre demand in the first half of 2021, along with continued strength in GPU sales for PC gaming. Both these areas delivered strongly in Nvidia’s third quarter results.
In the third quarter, earnings per share came in at $2.91, easily topping Wall Street’s predicted $2.57. That quarter proved to be something of a blockbuster, with Nvidia seeing record revenue of $4.73bn, up 57% from the same time last year. Gaming revenue came in at $2.27bn, up 37% from the previous year, while data centre sales were $1.9bn, a massive 162% increase on the previous year. For the fourth quarter, Nvidia said it expects to post $4.80bn in revenue, give or take 2%.
Nvidia's record Q3 2020 revenue
Time to buy Nvidia?
Despite the impressive results, Nvidia’s share price has stagnated, dropping just over 3% in the past 3 months. Investors weighing up whether to buy Nvidia may have to accept that gains could be more muted in 2021. A clearer picture will emerge when Nvidia posts fourth quarter results mid-February. Another strong showing could reinvigorate the stock’s sluggish performance so far this year.
Analysts remain bullish on Nvidia’s share price performance over the next 12 months. Among those tracking the stock on Yahoo Finance, Nvidia carries a $592.84 price target, which would see a 9.5% upside on the current share price. Of the 38 analysts offering recommendations, 21 rate the stock as either a strong buy or buy.
|PE ratio (TTM)||88.49|
|Quarterly revenue growth (YoY)||56.80%|
Nvidia's share price vitals, Yahoo Finance, 14 January 2021