Nvidia (NASDAQ:NVDA) has some of the most sought-after gaming graphics processing units (GPUs) globally and is a leading player for visual computing across many fields. However, with the recent decrease in growth stocks, NVDA stock has fallen off a bit lately.
Nonetheless, Nvidia is a success story because it has continuously evolved and improved — not just in its products but also in its business practices. Therefore, the blip in NVDA stock is a short-term issue for investors.
Of course, there are several external factors affecting NVDA stock. One of the latest examples is the cyberattack against Nvidia. Additionally, concerns regarding interest rate hikes are an additional factor leading to the selloff in growth stocks.
However, NVIDIA is the clear leader in GPU technology, with an unassailable record of success. And with the potential of the metaverse and strong industry trends, investors should consider the semiconductor company as an excellent stock pick.
Also, you should always see valuations relative to what interest rates are expected to do. Under these circumstances, it is important to treat each investment on its merits.
Furthermore, there is another element weighing down sentiment for NVDA stock. Nvidia is abandoning plans to buy Arm Holdings. Following months of troubled speculation, the graphics giant’s proposed $40 billion acquisition of the company from Softbank (OTCMKTS:SFTBY) is now not going through. In turn, SoftBank is reportedly preparing an initial public offering (IPO) of their Arm subsidiary as a plan B due to the deal falling apart.
Overall, on its own, NVDA stock is an excellent stock. Its recent quarterly earnings confirm everything is going in the right direction. Therefore, the sluggish price momentum is frustrating. But considering the solid fundamentals, a comeback is around the corner.
External Factors Affecting NVDA Stock
Nvidia is currently investigating a potential cyberattack following reports that the company may have been offline for two days. There was a network intrusion on Nvidia’s email system and developer tools, which caused outages over the last two days.
“We’re investigating an incident,” the company revealed. “We don’t have any additional information to share at this time.” The Nvidia spokesperson refused to provide further comment.
The outages from Nvidia have not been linked to the conflict between Russia and Ukraine. However, the U.S. government has advised U.S. companies to be prepared for potential cyberattacks.
On a side note, Nvidia and other growth stocks are feeling the pressure of inflation. There is the potential of interest rates going up at some point, and this fear is causing the stocks to fall.
In fact, Goldman Sachs (NYSE:GS) now thinks the Federal Reserve will raise rates seven times, up from a previous estimate of five increases. Also, the bank has revised its forecast of a 25 basis-point hike in interest rates this year, according to Jan Hatzius and other economists.
The move comes after the recent news that U.S. consumer prices jumped by the largest amount since 1982. That view is gaining momentum among investors, and they are expecting a similar timeline of hikes.
Nvidia’s Stellar Fourth-Quarter Earnings Report
Prior to its report on Feb. 16, Wall Street was expecting Nvidia to report a big quarter. And the company more than delivered when it released its earnings.
Nvidia reported a 69% growth in non-GAAP earnings per share (EPS) of $1.32 on total sales of $7.64 billion, beating Wall Street expectations by a wide margin. The company also delivered impressive guidance to its shareholders.
Based on its estimates, NVIDIA is targeting around $8 billion in revenue for Q1 2023. Meanwhile, Wall Street forecasts revenue of $8.11 billion for the period, so they are in line with expectations.
Collectively, the company has a dominant force in the chip space by focusing on gaming, data centers and emerging metaverse business. Nvidia continues to lead in its data center and AI leadership as well, with an impressive positioning well into 2022. That said, metaverse and autonomous driving platforms are expected to provide new growth opportunities.
With Nvidia’s guidance for this quarter being strong, it seems that their products are doing well. They also beat expectations by a large margin and have several catalysts to ignite growth going forward.
However, despite the positive result, Nvidia’s share price has not traded well since their earnings release — down about 10% over that period. Part of the reason is the overall weak sentiment in the markets these days due to potential interest rate hikes. But, apart from these broader factors, less gross margin and higher operating expenses are likely factors the stock is under pressure.
However, on the fundamentals side, NVDA stock continues to deliver.
What the Failed ARM Deal Means for NVDA Stock
After Nvidia made little progress on approval of the ARM deal, a decision was taken to abandon it quietly. The purchase of Arm drew a lot of criticism from regulators and foundations in the semiconductor industry, and detractors included their customers. Furthermore, the Federal Trade Commission (FTC) sued Nvidia over the Arm acquisition, as there were major concerns surrounding the company becoming too powerful.
Arm’s business model is built on the foundation of its technology being neutral. This means that it doesn’t have any proprietary rights to itself, allowing for greater flexibility and control in how you use these chips across different industries. In turn, this has made them an integral part of not just of phones but also cars or factory equipment alike.
Therefore, tech giants were extremely worried about Nvidia’s proposed ARM purchase in their industry.
This deal would be a huge victory for CEO Jensen Huang, who has built up his business into something that can potentially take down Intel (NASDAQ:INTC). Thus, despite the acquisition falling through, Nvidia will continue to do well. It has always been an innovator in AI computing, which shows that its products constantly improve with time.
So, with or without the Arm purchase, Nvidia is a great investment.
NVIDIA’s Omniverse Platform
At Nvidia’s virtual GTC conference, Jensen Huang announced the release of their new software called Nvidia Omniverse. The creators say they hope this will be a collaboration tool that is highly scalable and used to create 3D works of art. They also introduced the much-anticipated Omniverse Avatar that allows developers to animate avatars easily on different operating systems, like Windows or Linux.
Moreover, on Jan. 4 at CES, Nvidia launched its recent software for creators who use their GPU. They also refreshed the GeForce RTX graphics card to encourage gamers to upgrade and use ray-tracing technology. Now, anyone can build and manage a virtual universe from the software’s built-in tools. It also creates simulated environments that help with disaster management.
Of course, Nvidia is primarily known for its graphics cards and GPU partnerships. But it’s also changing the way companies access data.
The company has just announced plans to create a digital twin of planet Earth with its Omniverse platform to try and predict how climate change will impact us in the next few decades. Other companies like IBM (NYSE:IBM) plan to use it for similar purposes like creating digital twins of environments.
Bottom Line on NVDA Stock
Collectively, the demand for Nvidia chips is sky-high with a shortage of supply. This opens up a gap in the market and will likely lead to the public getting more creative about where they buy their computers, video games and data centers. Right now, businesses are suffering another round of shortages; thus, Nvidia is also suffering.
Nevertheless, the firm is expanding its business with cloud gaming and data centers. Als, the adoption of metaverses could further boost demand for Nvidia chips because they will allow users more immersion into their virtual worlds than ever before.
The emerging metaverse is a digital representation of our world. But it’s only as good as the computing power and graphics chips that run on its surface. Therefore, Nvidia is a vital part of this new world, thanks to their cutting-edge GPUs that can render realistic visuals on-demand. The kind you see in VR games or holograms for avatars you might use.
Overall, NVDA stock is a stellar investment with excellent growth prospects and a bright outlook. It is a great long-term investment, so don’t let the sluggish price momentum stop you from investing.
On the publication date, Faizan Farooque did not hold (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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his work on InvestorPlace and TipRanks.