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Nvidia's Parabolic 2020 Gains Are Put To The Test After The Bell

Daniel Laboe
·5 min read

Nvidia NVDA has been a growth story for the history books, and 2020 was another feather in the cap for this innovation-driven chip giant. NVDA's 124% gains in this unprecedented year are going to be put to the test when the company releases its Q3 results tonight after the closing bell.

NVDA has become the most valuable chip company in Silicon Valley, soaring past the antiquated Intel INTC, and second most valuable in the world. Sitting behind the manufacturing kingpin, Taiwan Semiconductor Manufacturing Co. TSM, who has claimed its stake as the go-to foundry for leading chipmakers everywhere.

Its cutting-edge chip technology has consistently stayed miles ahead of the innovative-curve. It will be vital in the 4th Industrial Revolution with the advancement of cloud computing, and the development of true AI. Nvidia's stock has been lifted in accordance with this implication. Now the question is whether too much has been priced in, or possibly not enough?

What to Expect This Evening

Analysts are anticipating a record quarter from Nvidia. Datacenter revenues have finally surpassed the business's gaming segment and are now the primary topline driver.

This pandemic has catalyzed a resurgence in hyperscaling, with data center giants investing heavily in the next generation of chip technology to stay ahead of the innovative curve, providing Nvidia with a massive tailwind.

According to Zacks Consensus estimates, the Street expects an EPS of $2.57 on sales of $4.42B, which would represent year-over-year growth of 44% and 47%, respectively. The baseline for earnings expectations here will be a beat, with the past 5 consecutive quarterly results exceeding top and bottom-line estimates.

I would be careful with putting on any positions before tonight's report. The most parabolic tech stocks in 2020 have seen profit-pulling this earnings season after investors & traders see what they want for the quarter.

Semiconductor Earnings Season Thus Far

Leading chip makers TSMC, Intel, and AMD AMD all saw selloffs immediately following their Q3 earnings in the past month or so, despite some strong results. Qualcomm QCOM was one of the only major chip makers who saw a positive price action after illustrating a massive EPS and sales beat.

TSMC and AMD both quickly rebounded from the post-earnings correction, with TSM sitting right at all-time highs. AMD has popped back above its pre-earnings share price.

INTC, on the other hand, remains a disappointment, with its share price tumbling roughly 25% this year. The company continues to fall behind the innovative curve with its in-house fabrication unable to keep up with the 3rd party manufacturing king TSMC, which has helped NVDA, AMD, and QCOM reach their full potential in recent years.

Intel needs to get its act together, or it may end up being forced to sell off its divisions as spare parts. 

Nvidia's Recent Acquisition Announcement

Nvidia announced it would be acquiring Arm Limited from Softbank SFTBY for $40 billion back in September. If the deal goes through, it will be the largest chip deal in history, but first, it must get past the 3 major regulatory authorities, including China, which could pose a challenge amid the reheating US-China trade war.

Nvidia's announced acquisition would significantly expand the enterprise's chip market control. Nvidia now primarily focuses on GPUs and is leveraging the technology's hyperfast computing power to develop "true AI." The purchase of Arm will give Nvidia a firm grasp on the CPU market and provide the combined company with a whole leg in the smartphone market door.

This AI-juiced semiconductor powerhouse and its visionary CEO, Jensen Huang, have proven that Nvidia is a force to be reckoned with. Softbank's leader, Masayoshi Son, and his close ties with Huang catalyzed this ostensible "value deal" for Arm. Son is selling the business to Huang for a song at $40 billion, having bought the company for $32 billion in July of 2016.

This deal includes a significant amount of NVDA stock, which I believe is a big part of the reason that Son is selling the company at such a favorable price. He believes in what Nvidia can transform this business into and wants to be a part of the action.

Look for color on any new developments regarding this landmark acquisition in the earnings call this evening.

Final Thoughts

The innovation-driven enterprise is going to be a major player in the 4th Industrial Revolution and is already a central piece to the development of AI. Nvidia's chips are set to power the world's fastest AI-powered supercomputer, Leonardo, which is being built in Italy by an academic consortium called CINECA.

NVDA chips can already be found in 8 of the top 10 supercomputers and 2/3rd of the top 500.

The future is bright for NVDA, and it remains a robust long-term investment, but I'm not buying more before earnings. I will hold my current positions in the business and hopefully get an opportunity to add to my holdings in a post-earnings dip.  

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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