Breaking out to new highs almost daily, Nvidia (NASDAQ:NVDA) stock is the darling of the technology sector.
NVDA outpaced Advanced Micro Devices (NASDAQ:AMD), which is slowly finding new yearly highs, and 28 out of 29 analysts rate it as a buy, according to Tipranks.
Still, the average price target is $763, which suggests no near-term upside.
Revenue momentum continues to rise, so expect Wall Street to raise their price targets after Nvidia’s next earnings report.
On June 28, Nvidia said it would create the industry’s first AI-on-5G lab with Google Cloud.
This would speed the development of AI Everywhere. The pair will enable network infrastructure players and AI software partners to adapt various 5G and AI applications.
The lab will offer Nvidia accelerated computing hardware and software platforms and Google Cloud’s Anthos platform. Platform development starts in the second half of this year.
The partnership will further widen Nvidia’s addressable market in the AI and 5G space.
It also raises awareness of Nvidia’s Aerial software development kit on the BlueField-2 A100. That is a converged card having GPUs and DPUs. It also has Nvidia’s 5T for 5G solution.
Nvidia’s extended support for Arm-based CPUs is a positive development. Customers get more choices on the 5G ecosystem.
ARM Acquisition and NVDA Stock
Nvidia is waiting for regulators to approve its $40 billion acquisition of ARM.
Three big companies — Broadcom (NASDAQ:AVGO), Marvell Technology (NASDAQ:MRVL), and MediaTek — publicly supported the deal. Conversely, Qualcomm (NASDAQ:QCOM) is ready to invest in ARM if the deal collapses.
Qualcomm would benefit from taking ARM. The company failed to acquire NXP Semiconductors (NASDAQ:NXPI) a few years ago. In the last year, NXPI shares rose by 80% from yearly lows.
Furthermore, as Apple (NASDAQ:AAPL) takes its chip design and production in-house, Qualcomm’s market shrinks.
Shareholders will need to wait for regulators to approve the Arm acquisition. Once that happens, Nvidia’s market share will grow.
This will lift Nvidia’s revenue and increase its profits. The company’s cash flow may grow so much that dividends will rise from 64 a cent, which is below a 0.1% yield.
Crypto Still Has a Role
The cryptocurrency’s $64,000 peak did little to hurt NVDA stock. Markets are anticipating bitcoin and Ethereum to rally back, eventually.
Cryptocurrency miners will still need more Nvidia GPUs. This will pressure supply and keep prices at high levels. Nvidia’s profit margins will expand as a result.
Nvidia’s launch of a new anti-crypto mining GPU to replace the RTX 3060 is only symbolic.
The prices of gaming GPUs are still through the roof. Plus, they are out of stock. Gamers have to wait for months to get a new Nvidia card.
Investors can expect that the market will face GPU shortages for at least another six months. The pandemic, higher cryptocurrency mining and supply chain disruptions earlier this year will keep GPUs in short supplies.
Media sites reported that AMD and Nvidia are making improvements to alleviate the chip shortage. Still, this is only speculation. Online retailers are still out of stock on Nvidia products. Those who have inventory are selling at prices far above their MSRPs.
The Risks Are Minimal
Nvidia scores more than 80/100 on growth and quality. Its value score is 65/100, according to stockrover.
Valuation risks only matter if Nasdaq faces a stock market correction. That came and went in Feb. 2021. Without any market headwinds, Nvidia’s valuations will not matter.
The cloud computing and consumer markets are growing briskly. Investors will get rewarded by buying NVDA shares at any price.
Sure, a sudden steep drop in cryptocurrency is possible, but a bear market is unlikely if history is a guide. That will lead to a supply shortage and excess demand for Nvidia cards.
On the date of publication, Chris Lau 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.
