Nvidia: Can Anything Stop This Train?

Nvidia (NASDAQ:NVDA) is one of those companies that can make a humble reporter look like a genius. I called NVDA stock a “bullet train” in 2016, when the shares passed $100.  I pointed out how not all its success was tied to gaming in 2019.

A racecar featuring Drive PX 2 technology from Nvidia (NVDA) parked.
Source: Steve Lagreca / Shutterstock.com

When I finally took my own advice, it made my eventual retirement look golden. Shares I bought for $157 in 2019 opened January 15 at $530.

But I must admit I took some profits recently, selling part of my position at $511. Did I make a mistake?

Clouds Around NVDA Stock

What pushed Nvidia shares over $500 was the agreement to buy ARM Holdings from Softbank (OTCMKTS:SFTBY) for $40 billion, a deal announced in September.

ARM designs lie inside Apple (NASDAQ:AAPL) chips, as well as those of the other Cloud Czars. The deal puts Intel (NASDAQ:INTC) and even Advanced Micro Devices (NASDAQ:AMD) squarely in Nvidia’s sights. But since the deal went down shares have been stuck in a trading range. They’re up only 2.5% while the average NASDAQ stock is up 18.5%.

Why? One reason could be skepticism the ARM deal will ever go down. Regulators in many countries must approve it. China has been slow-walking to tech acquisitions, as Cisco Systems (NASDAQ:CSCO) now knows well. The incoming Administration may not be as sanguine as the outgoing one was. Europeans also must go along.

Then there’s the valuation. Nvidia is now worth $327 billion. Its 2020 sales were under $20 billion. The price to earnings ratio is 86x, and the 16 cent/share quarterly dividend now yields just .12%. Add the moves of Apple and the other Czars toward their own designs (even if they’re based on ARM). Add the recent move by Intel to finally get its act together, hiring Pat Gelsinger from VMWare (NYSE:VMW) as its CEO.

Who Should Buy Now?

None of this has chased out all bullish sentiment. Of 18 analysts following the stock at Tipranks, 14 still say buy it. Their price target of $597 is 13% above the current price. Valuewalk calls NVDA stock the “slam dunk of the decade.”

There is still a lot to like. Gaming remains strong, giving one analyst a $650 price target. As I wrote years ago, gaming offers designers the cutting-edge when it comes to speed and features. Nvidia began as a graphics chip maker for gaming PCs.

There’s now a gaming chip shortage, with Nvidia boards selling well above their list price. Nvidia remains hungry, re-starting production for cryptocurrency miners.  It has announced a new, less-expensive chip for laptops that should keep gamers salivating. Nvidia design leaks are now followed as avidly as those for Intel once were.

Then there’s the car market. Nvidia CEO Jensen Huang says software will soon define auto profit, and hardware is increasingly software. (Nvidia doesn’t own any fabrication plants.) Nvidia can create a “halo effect” around cars that support it, as was shown recently with Nio (NYSE:NIO), which hit an all-time high after agreeing to work with it.

I sold half my Nvidia position and put some of it into Intel while drawing out cash. I haven’t left the stock, and don’t advise others to.

I now have a real profit in Nvidia, but I haven’t sold out of it. It’s still a great long-term holding. But when an investor sees a big gain, it’s wise to take something off the table. You don’t really have a profit, in any stock or security, until you sell it and have cash in your hand.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/. At the time of publication, Dana owned shares in AAPL, NVDA and INTC.


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