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Graham Griffin
Graham Griffin
Articles (110) 

Nvidia's 'Greatest Generational Leap' Aims for Pay Dirt

Cutting edge GPUs and Arm Ltd. acquisition poised to reverse Nvidia's recent struggles

September 18, 2020 | About:

Nvidia Corp. (NASDAQ:NVDA) has started to roll out its next generation of graphics processing units, with the first release of the series hitting the market on Sept. 17. While the company has seen share prices drop from their record high of $573.86 at the beginning of the month, the new graphics cards along with the acquisition of Arm Ltd., an AI company based in the U.K., should help to stabilize the recent decline.

Nvidia is a leading designer of GPUs that enhance the experience on computing platforms. The company's chips are used in a variety of end markets, including high-end PCs for gaming, data centers and automotive infotainment systems. In recent years, the company has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of its graphics processing units.

The new Nvidia Ampere GPUs are all slated for releases in September and October of this year. The first of the releases, the RTX 3080, is slated in the middle of the lineup with a price tag of $699, and has already sold out across the majority of online retailers. The flagship card, the RTX 3090, with a price of a whopping $1,499, is set for release next week while the baby brother of the family, the RTX 3070, has a release date set in October.

According to CEO Jen-Hsun Huang, the new 30-series GPUs are "the greatest generational leap" the company has made to date with its graphics technology. Even the bottom-tier RTX 3070 is claimed to outperform the best of the previous generation's lineup.

The massive rise in share prices began back at the end of 2016 alongside the release of Nvidia's GTX 10-series cards. From there, prices continued to gradually increase through 2018 until struggling sales to data centers, alongside other contributing factors, led to a decline in share prices. However, the stock went back on to rally once again with the release of an upgraded set of RTX 20-series cards carrying the moniker of "Super."


Earlier this month, Nvidia also announced a "definitive agreement" to acquire Arm from SoftBank Group Corp. (TSE:9984) and the SoftBank Vision Fund in a transaction valued at $40 billion according to a press release:

"NVIDIA and SoftBank Group Corp. (SBG) today announced a definitive agreement under which NVIDIA will acquire Arm Limited from SBG and the SoftBank Vision Fund (together, 'SoftBank') in a transaction valued at $40 billion. The transaction is expected to be immediately accretive to NVIDIA's non-GAAP gross margin and non-GAAP earnings per share.

The combination brings together NVIDIA's leading AI computing platform with Arm's vast ecosystem to create the premier computing company for the age of artificial intelligence, accelerating innovation while expanding into large, high-growth markets. SoftBank will remain committed to Arm's long-term success through its ownership stake in NVIDIA, expected to be under 10 percent."

As of Sept. 18, NVIDIA was trading at $486.81 per share with a market cap of $300.66 billion. According to the Peter Lynch chart, the stock has been trading well above intrinsic value in recent months.

c85702da3b0a1c9de6c3d497bb7706c9.pngGuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 10 out of 10 and a valuation rank of 1 out of 10. The new GuruFocus Value line chart shows the company is currently significantly overvalued with a price-to-GF-Value at 1.62.


There are currently two severe warning signs issued for assets growing faster than revenue and poor quality of earnings according to the Sloan ratio. Debt levels have remained relatively consistent throughout the last several years, while the company has continued to drastically increase cash flows.


Disclosure: Author owns no stocks mentioned.

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