Ordinarily, you wouldn’t expect a company’s equity to rise following a major acquisition in a time of unprecedented economic crisis. Yet that’s exactly what happened to Nvidia (NASDAQ:NVDA) when it announced the completion of its buyout of Mellanox Technologies. Despite a transaction value of $7 billion in an ecosystem where cash is king, NVDA stock popped up 2.6%.
However, this is no ordinary acquisition. Personally, I respect Nvidia’s forward-focused mindset, especially considering the economic devastation all around us. Better yet, it appears most of Wall Street agrees. With the buyout, Nvidia It also positions them as a technology leader when we eventually get to the other side of the tunnel.
Nowadays, we take for granted innovations like cloud computing and the Internet of Things. But for these technologies to work effectively, they require massive amounts of data. As a result, most organizations have shifted their data requirements to the cloud, which of course requires world-class hardware to harness.
Data Center 2.0 Will Be Huge for NVDA Stock
Initially, the data center industry benefited from low-hanging fruit; that is, first-to-market players levered a significant advantage. But as the platform became more sophisticated, clients weren’t just looking for those who could “do” data centers. Instead, they wanted companies that could do data centers well.
This is a natural evolution for any industry, tech-related or not. But the novel coronavirus has accentuated the need for truly competent players. As voluntary stay-at-home requests became mandatory across most states and many countries, millions of office workers suddenly found themselves telecommuting. Obviously, this has put a strain on internet connectivity.
Now, if you’re streaming content on Netflix (NASDAQ:NFLX), performance lag is incredibly disruptive to the user experience. However, I’d argue that outside of the company, streaming is a non-essential service. Besides, one bad experience isn’t likely to cause subscribers to ditch the platform.
But what about retailers running e-commerce operations? A slow down could result in lost sales opportunities. Such an issue is bad enough in good times. But at a time like this, it could devastate an already embattled business.
With Nvidia’s Mellanox acquisition, NVDA has positioned itself as tomorrow’s leader in the data center space. Because now, users have greater requirements from their data centers, which include reliability and resilience in addition to performance expectations. Not only that, many data centers serve critical infrastructures, such as hospitals.
With Nvidia becoming a dominant leader, I expect NVDA stock to move higher in the long run.
AI is Another Big Synergy
One of the reasons I’ve generally been bullish on NVDA stock is that the underlying company never rests on its laurels. They refuse to be complacent with their market share lead in certain segments.
Over the years, Nvidia has devoted research dollars into artificial intelligence. What makes the Mellanox buyout so intriguing is that the two already have established synergies. For instance, Mellanox solutions have been integrated into Nvidia’s machine learning DGX1 appliance.
With the two under the same umbrella, we should see an explosion of AI integration across several platforms. Already, the technology has made a massive impact on our daily lives. Most notably, modern vehicles are much safer today due to myriad AI-driven safety features, such as blind-spot detection systems. As the technology improves, we can eventually expect to see self-driven vehicles.
Obviously, the automotive sector is currently one of the most devastated markets so we may have to wait a bit longer. Nevertheless, I’m still excited about the potential for NVDA stock.
Last week, the Department of Labor announced that approximately 4.4 million people filed for unemployment benefits. Over a five-week period, more than 26 million Americans have found themselves out of work.
Given these awful statistics, the idea of a quick, V-shaped recovery is unrealistic. Unfortunately, many replaced workers probably won’t find a welcoming jobs environment because of AI and automation.
As former Democratic presidential candidate Andrew Yang argued, many of the reduced jobs are “gone for good.” Cynically, AI platforms make many previously human-operated functions obsolete. While this is a question for the country to figure out, it’s presently a big plus for NVDA stock.
GPUs Keep the Lights On and More
If all the above weren’t enough to convince you to at least consider NVDA stock, then Nvidia’s gaming prowess could help tip the scales bullishly. As you know, the company dominates production of world-class graphics processing units. And as luck would have it, the coronavirus may benefit this business.
Again, with most Americans forcibly quarantined, many find themselves going stir crazy. Gaming, though, provides a meaningful outlet. Further, it’s not unreasonable to assume that some casual gamers may upgrade their hardware to accommodate current standards.
That’s because the Covid-19 pandemic has brought together celebrities and fans in an unprecedented manner. For instance, Formula 1 has staged virtual exhibition races that allow gamers to compete with professional race car drivers. That’s a once-in-a-lifetime experience for most folks. And I guarantee you that many participants ponied up for improved hardware. You don’t want to let something as silly as performance lag ruin this golden moment.
Therefore, if you can stomach the volatility associated with the coronavirus, NVDA stock is a very solid investment. From nearly all fundamental angles, Nvidia has positioned itself for future strength and relevance.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
