Why NVIDIA Stock Jumped 23% in June | The Motley Fool

What happened

Shares of NVIDIA (NASDAQ:NVDA) gained 23.1% in value last month, according to data provided by S&P Global Market Intelligence. During June, Broadcom, Marvell Technology, and MediaTek expressed support for NVIDIA’s $40 billion acquisition of Arm Holdings from Softbank Group (OTC:SFTBF) (OTC:SOBK.Y). The proposed acquisition is currently making its way through a rigorous regulatory review process, but the vote of support from three of Arm’s customers puts the deal one big step closer to being finalized.

This news comes on top of incredible momentum NVIDIA has right now. It delivered a terrific earnings report in May, with revenue reaching a record $5.66 billion, up 84% year over year, and there’s no sign of growth slowing down.

NVDA data by YCharts

So what

If the Arm deal is completed, which NVIDIA believes will happen by early 2022, it will accelerate NVIDIA’s deployment of AI computing across all of the markets where Arm’s chip architecture is already dominant, in addition to paving a path for NVIDIA’s expansion into new markets, such as bringing AI computing to the edge on 5G networks

During a conference in June, Arm CEO Simon Segars said, “There’s no way we can do it all on our own, but through the combination with NVIDIA we will have a lot more resources to create a richer portfolio of IP that fuels the delivery of all these applications yet to come.”

NVIDIA's corporate headquarters.

Image source: NVIDIA.

Now what   

The growth potential with Arm is not all investors are excited about. NVIDIA is doing just fine without Arm, with strong performance from the gaming and data center segments last quarter. Current estimates call for NVIDIA to grow revenue by 49% in the current fiscal year. 

NVIDIA is already a leading supplier of hardware in the data center market and has penetrated the networking side with the 2020 acquisition of Mellanox. But investors are very optimistic about the company’s prospects to expand into software solutions, which is part of NVIDIA’s mission to democratize artificial intelligence for companies all over the world. During an earnings call with analysts in May, CEO Jensen Huang said that the company is set up for “years of growth in data center.” 

One analyst expects NVIDIA’s data center business alone to generate $30 billion in annual revenue by 2025. If NVIDIA can achieve that, the stock should have more room to run, since data center products carry higher profit margins than other products. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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