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Nvidia’s $40 Billion Deal Brings a Stock Split into the Picture

It's time to reset the clock on NVDA stock

Nvidia (NASDAQ:NVDA) announced Sep. 13 that it was buying U.K.-based ARM Holdings for $40 billion from Softbank Group (OTCMKTS:SFTBY). NVDA stock opened Monday morning up more than 7%.

Scorching Hot, Overvalued Nvda Stock Still Looks Like a Buy
Source: Sundry Photography / Shutterstock.com

More importantly, it regained a $500 share price after briefly hitting this level for the first time in late August before retreating into the $400s come September.

In my most recent article about the company, I argued that a $1,000 share price could come sooner rather than later, suggesting its free cash flow generation would continue to attract its fair share of investors.

I felt confident about Nvidia’s chances given it was dollars away from hitting $500 for the first time, approximately two years after I predicted it would. At the time of my September 2018 guess, and yes, it was nothing but a guess, it had been on a three-year run that saw its stock move from $23 to $280, a more than 10-fold appreciation.

What’s even more impressive is that days after my September 2018 prediction, NVDA stock fell by 50% in three months due to the late 2018 market correction. From the December 2018 lows, it is up 285% over the past 21 months.

Nvidia Might Not Get the Green Light

It’s hard to know whether Nvidia will get regulatory approval from all the different parties that must give it their blessing: U.K., European Union, U.S., and China.

“Xiang Ligang, director-general of the Beijing-based Information Consumption Alliance, told the Global Times that the Chinese government is likely to play a role in reviewing the case and the chance of its approval is low,” Global Times contributor Zhang Hongpei reported September 14.

“‘Regardless of whether the US government stands behind the purchase, its impact on China’s semiconductor industry is not something we want to see in the future.’”

I’m not about to profess any insider knowledge that would allow me to handicap the likelihood of approval by all the relevant parties.

What I do know is that Jensen Huang, Nvidia’s chief executive officer and co-founder, is very good at his job. I said as much in my August article while discussing rival CEO Lisa Su, of Advanced Micro Devices (NASDAQ:AMD).

“Ultimately, when Su does leave, she will depart with the company in a much better place than when she took the job in October 2014. That’s the hallmark of a good CEO,” I wrote.

“Another good CEO is Nvidia’s chief executive and founder, Jensen Huang. He’s built the company from something focused on PC graphics to a business with multiple revenue streams, the two most prevalent being data centers and gaming.”

Huang wouldn’t have made the deal if he thought a solution wasn’t there for the taking. It’s possible the ARM joint venture in China could be spun off to appease Chinese regulators.

What I do know is that if the deal goes through, in whatever form regulators see fit, Nvidia shareholders will be better off.

As InvestorPlace contributor Louis Navellier said recently, “If it goes through, it would represent the largest semiconductor deal in history and provide a massive boost to NVIDIA’s dominance in the sector and investors’ portfolios.

Here, here.

What Does This Have to Do with an NVDA Stock Split?

As part of the ARM transaction, Nvidia is issuing 44.3 million shares of its stock and $12 billion in cash. Softbank’s already gained $1 billion from the appreciation of those shares. Of course, the deal has to go through for it actually to benefit from these interim gains.

If the seller were anyone but Softbank, who’ve been in asset-sale mode the past few months, I’d recommend hanging on to the shares. Alas, they’ll likely be sold soon after closing.

Recently, several prominent companies have split their stocks.

Tesla (NASDAQ:TSLA) did a 5-for-1 split on Aug. 31. Apple (NASDAQ:AAPL) did the same thing Aug. 28,  and now NextEra Energy (NYSE:NEE), a stock to buy if Biden wins the election, is doing a 4-for-1 split in October.

Nvidia stock hasn’t traded below $100 since March 2017. Maybe it’s time that it did — a 5-for-1 and then a run to $1,000.

That would be something.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/nvidias-40-billion-deal-brings-nvda-stock-split-into-picture/.

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