Computer chip maker Nvidia’s (NASDAQ:NVDA) stock has been rallying since the Santa Clara, California-based company announced a 4-for-1 stock split on May 21, providing a great opportunity for investors to realize short-term gains.
NVDA stock enjoyed a great run in 2020, rising 184% between March and November. However, since that bull run, the company’s share price had fallen 20% to as low as $463.73 a share in early March. The stock had been struggling to break above $560 a share for much of this year. Strong earnings growth and positive forward guidance couldn’t shake the stock out of its funk. That was until the stock split announcement. Since Nvidia announced plans to split its stock on a 4-for-1 basis as of July 19, the company’s shares now sit at $748.44 per share.
The rally has been welcomed by shareholders and Wall Street analysts who continue to see Nvidia as a market leader in semiconductors and graphics processor units that run the computer industry. Investment bank Robert W. Baird & Co. issued coverage of Nvidia in May with an “outperform” rating and an $800 per share price target. The bank wrote in its analysis that “Nvidia is poised to dominate artificial intelligence computing, the most transformational technology of our era.”
NVDA Stock: Exceptional Results
Nvidia has managed to post exceptionally strong financial results this year despite the global shortage of semiconductors that has hobbled industries ranging from automotive to smartphones. In this year’s first quarter, Nvidia’s revenue increased 84% from a year earlier driven by continued demand for its graphics chips that run video games. Nvidia’s first-quarter revenue totaled $5.66 billion, which easily beat the $5.41 billion that was expected by analysts. Earnings per share (EPS) came in at $3.66 compared to the $3.28 that analysts had forecast.
Looking forward, Nvidia said it expects $6.30 billion in revenue in the current second quarter, which would be a 62% year-over-year increase. In addition to video games, Nvidia’s graphics processor units (GPUs) are essential for artificial intelligence and cryptocurrency mining. And demand among cryptocurrency miners has been strong this year. So much so that Nvidia has added new software features to deliberately make its GPUs less attractive to cryptocurrency miners in order to preserve supplies for other customers.
The company said that the global semiconductor shortage is leading to some supply constraints currently but that it sees the situation improving in the second half of 2021.
China Problem
In addition to the current microchip shortage, the one negative issue that could potentially hold Nvidia back is its planned $40 billion acquisition of Arm Holdings, a core processor technology company. While the company has repeatedly said that it hopes to conclude the transaction in 2022, the deal is being scrutinized by competition regulators around the world as the combined companies would be among the biggest players in artificial intelligence. And, it was recently reported that China may delay approving Nvidia’s purchase of Arm.
Nvidia has submitted a formal application to Chinese regulators, asking for approval of the Arm acquisition. However, Chinese regulators have said that they could take up to 18 months from now to reach their own conclusion on the deal. Complicating matters is the fact that Arm Holdings has as a joint venture called “Arm China” with Chinese private equity firm Hopu Investments. Arm China is headquartered in Shanghai, giving China’s Ministry of Commerce and State Administration for Market Regulation the right to review the proposed Nvidia deal.
How China’s regulators, and others, ultimately rule on the Arm acquisition remains a cloud over Nvidia and its stock for the time being. But in the long run the conclusion of the Arm deal is likely to be a minor hiccup for the chip maker and its shareholders.
Buy NVDA Stock Ahead Of The Stock Split
With NVDA stock rallying, now is the time for investors to buy. The company’s share price is likely to continue rising in the lead-up to the July 19 stock split. And investors wanting to cash in on short-term gains can ride the pre-split momentum to decent returns. Of course, Nvidia is not a bad long-term investment. Investors who own the company’s shares as of June 21 will participate in the stock split and receive a dividend of three additional common shares for every share they hold. Over the long-term, those shares can be expected to grow substantially.
The bottom line is that now is a great time to buy Nvidia, one of the leading technology growth stocks on the market today. Add NVDA stock to your portfolio before they split next month.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
