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What’s driving Nvidia's share price?

All things considered, 2020 has proven to be a fairly steady year for Nvidia's [NVDA] share price as the stock has gradually gone on to reach new heights, and is currently trading up 125.59% year-to-date (as of 30 September’s close).

In the first quarter, before the coronavirus pandemic started to affect the markets, Nvidia’s share price set a new record when it closed at $314.27 on 19 February.

As Nvidia's share price tumbled alongside the wider market, it fell to $196.25 on 16 March — a loss of 16.5% YTD.  

Since then Nvidia's share price hasn’t fallen below its 2020 opening value. It was up 144.2% since the start of the year when it reached its highest-ever close of $573.86 on 2 September and an intraday high of $589.07.

September saw Nvidia’s share price fall, but it continues to trade above 100% for the year, closing at $541.22 on 30 September.

 

 

 

Now with the company set to buy UK-based chipmaker Arm Holdings from Japanese conglomerate SoftBank [SFTBY] in a $40bn cash-and-shares-takeover, what can investors expect of Nvidia's share price?

 

The SoftBank deal

Nvidia’s share price will likely move when the firm buys Arm Holdings with $12bn cash and $21.5bn in common stock, which would make SoftBank one of the largest shareholders in Nvidia, with a less than 10% stake, according to the Financial Times. An additional $5bn cash payment will also be made if Arm Holdings hits certain financial targets.

This pushes the value of the company above the $32bn that SoftBank paid when it acquired Arm Holdings in 2016, and marks Nvidia's largest acquisition ever — far exceeding the $6.9bn takeover of Mellanox last year.

“Nvidia is the perfect partner for Arm,” said Masayoshi Son, founder and CEO of SoftBank. “Since acquiring Arm, we have honoured our commitments and invested heavily in people, technology and R&D, thereby expanding the business into new areas with high growth potential.”

“Nvidia is the perfect partner for Arm. Since acquiring Arm, we have honoured our commitments and invested heavily in people, technology and R&D, thereby expanding the business into new areas with high growth potential” - Masayoshi Son, founder and CEO of SoftBank

 

Jensen Huang, founder and CEO of Nvidia, also commented, saying: “Simon Segars and his team at Arm have built an extraordinary company that is contributing to nearly every technology market in the world. Uniting Nvidia's artificial intelligence computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe.”

Gus Richard, MD and senior research analyst with Northland Securities, believes the deal could solve the problem of Nvidia’s graphics processing units (GPUs) consuming too much power, according to The Fly. If fixed, Richard believes it would present a long-term risk to Nvidia's competitors, Intel [INTC], Vicor [VICR] and AMD [AMD], and likely see Nvidia’s share price rise.

 

Nvidia's share price future

Although Nvidia has a consensus Hold rating from Zacks, other analysts have a more bullish outlook.

Rajvindra Gill, an analyst at Needham, raised the firm's price target on Nvidia from $600 to $700 while maintaining a Buy rating. The analyst believes the deal will promote growth and could add between $1.20 and $1.65 in earnings per share in 2022, The Fly noted.

Among 37 analysts polled by CNN Money, the consensus rating is to Buy the stock. This rating is held by a majority of 26 analysts, with five suggesting to Hold, four rating the stock as Outperform and the remaining two evenly split between giving the stock Underperform and Sell ratings.

The median 12-month price target among 34 analysts polled by CNN Money is $562.50, with a high estimate of $700 and a low of $300. The median estimate represents a 3.93% increase from Nvidia’s share price as of 30 September’s close.

 

Market Cap$334.319bn
PE ratio (TTM)99.42
EPS (TTM)5.44
Quarterly Revenue Growth (YoY)49.9%

Nvidia share price vitals, Yahoo Finance, 1 October 2020

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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