A few weeks ago, I suggested you take some profits in Nvidia (NASDAQ:NVDA) stock. Within a week I was looking for a way for you to get back in.
Both stories occurred against the backdrop of a 4:1 stock split that became effective July 20. A retirement account that once held 100 shares at nearly $825 now has 400 at about $196.50.
I didn’t take my own advice. If you did, you have some extra cash. But where should you put it?
Why not in Nvidia, which may soon join the Dow 30?
Why So High?
Nvidia trades at over 24x expected 2021 revenue because it pioneered the great chipmaking trends of the last decade.
Its initial focus on graphics, for video game boards, has become the new frontier in software, thanks to Bitcoin (CCC:BTC-USD) and artificial intelligence. Its value as a “fab-less” design house led Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) to design their own chips, too.
The continuing chip shortage means demand is especially intense for Nvidia designs, which is why some analysts still call it a smart bet. Nvidia announces earnings for the July quarter on Aug. 18, with net income 85 cents per share, about $2.1 billion, expected on revenue of $6.27 billion. That’s $1 in every $3 of revenue hitting the net income line.
Shares got yet another boost after Advanced Micro Devices (NASDAQ:AMD) announced blowout earnings, guiding to $4.1 billion in revenue and announcing gross margins of 48%.
The Worries
But there are always worries.
Nvidia shares are up 51% during 2021 alone, despite three fierce downdrafts in February, April, and July. Just sitting on your position is profitable in the short run, but traders are also making bank.
Nvidia is now worth more than rivals Intel (NASDAQ:INTC), AMD and Qualcomm (NASDAQ:QCOM) put together. Intel, in particular, seems focused on finding new ways to challenge Nvidia. One way to challenge its margins is simply to raise the price of fabrication, as Samsung (OTCMKTS:SSNLF) did recently for its semiconductor wafers. Fabs don’t build themselves.
Gaining increased value now requires Nvidia getting its acquisition of Arm Holdings from Softbank (OTCMKTS:SFTBY) across the finish line. That may still be years away.
China, which must approve the deal, hasn’t even taken it up. European regulators seem more intent on seeing Arm go public, to give Europe power in the chip industry. The good news is Arm, being English, isn’t in Europe anymore.
Assuming the deal gets done, Arm designs would not only help power Apple and other big cloud companies, but the burgeoning Machine Internet as well. About 13 million designers now work around Arm designs, far more than work around Nvidia. Its latest design, dubbed PlasticARM, can literally be printed and run designs from internal memory. This would bring computing to nearly every inanimate object, even clothing and food packages.
The Bottom Line for NVDA Stock
NVDA stock will always be subject to downdrafts, as when China recently cracked down on cryptocurrency mining, pushing Nvidia boards back onto the open market.
But buying the dip has always proven profitable to investors. It should be again. CEO Jensen Huang has proven himself a natural successor to legendary Intel leader Andy Grove, claiming he’s always 30 days from going out of business.
Nvidia keeps finding new markets for graphics processing. What was once just a video game technology is now the leading edge of artificial intelligence. Nvidia is dominating in data centers as it has been on your kid’s gaming PC.
If you’re not in yet wait for some bad news, then get in. If you are in, hang on. The best is yet to come for NVDA stock.
On the date of publication, Dana Blankenhorn held long positions in INTC, NVDA, AMZN, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
