💾 Is NVIDIA A Cut Above Its Peers?

Apple's car plans; Alibaba tanks.

Hey Global Investor! Here’s what you need to know before the US markets open.

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💾 NVIDIA: Better Than All The Rest?

Graphic Processing Units (GPU) and chip-maker NVIDIA Corporation’s (NVDA) Q3 FY22 results convincingly beat street expectations. On the other hand, its crypto mining chips didn’t do as well, and there’s a regulatory cloud over its proposed $40B takeover of ARM. Investors focused on the positive, and its stock price spoke for itself. (Tweet This)

The Juggernaut Marches On

Despite the global chip crunch, NVIDIA did well to secure long-term supply contracts for semiconductor chips, even if it meant paying more than they should have. As a consequence, the company’s revenue for Q3 beat analyst estimates. It didn’t matter that its costs rose. Its earnings per share increased as well.

Key Stats From Q3:

  • Revenue: $7.1B Vs $6.82B expected – up 50% Y-o-Y and a record.
  • EPS: $1.17 Vs $1.11 expected – up 60% Y-o-Y

The company expects $7.4B in sales in the current quarter, higher than the $6.86B consensus estimates.

NVIDIA’s data center business reported a growth of 55% Y-o-Y to a record $2.9B. This business is growing as cloud providers increasingly turn to NVIDIA’s GPUs for their artificial intelligence-based applications.

The company’s gaming business also reported record revenues of $3.22B, up 42% from the same period last year on the back of an increase in its GeForce consumer GPU sales.

Its automotive business remained a small part of its overall sales with revenue of $135M, an 8% Y-o-Y growth during the year. As this segment grows, it’s likely to put the company in direct competition with peers such as Qualcomm, who are heavily investing in this space.

Metaverse has been the talk of the town in the recent past, and NVIDIA is working quietly to become one of the main suppliers to tech companies building this alternate universe. It introduced software products called “Omniverse Enterprise,” which can create virtual characters, interpret speech, and create new 3D worlds.

The Potential Red Flags

Cryptocurrencies are now scaling new records almost every single day. NVIDIA was one of the early entrants in the field of making digital shovels for crypto miners. The company introduced versions of its chips specifically targeted at crypto-miners.

The company could not capitalize on this growth, and its CMP chip sales fell to $105M in Q3 from $266M in Q2. The company expects CMP sales to be negligible in Q4. And then there’s the gorilla in the room that everyone’s waiting to hear from.

The UK’s Competition and Markets Authority (CMA). More specifically, the CMA’s review of NVIDIA’s proposed $40B acquisition of ARM, whose technology is at the heart of 95% of the world’s smartphones. The review of this deal has now been extended to phase 2.

The probe will take place over a period of 24-weeks and will scrutinize potential national security risks and competition concerns. Peers like Qualcomm, Google, and Microsoft have been up in arms against this deal, stating that this will cause irreparable harm to the semiconductor sector.

The European Union jumped into the fray and launched its independent investigation into the deal last month to evaluate whether ARM will give NVIDIA an unfair edge. The Chinese antitrust regulator has already started a review in June, which may take ~18 months.

What all this means is that the proposed March 2022 timeline for this transaction to consummate is not practicable. There’s also the specter of semiconductor chip shortage which could make things difficult regarding access to supply. While the company has it in control, for now, it’s something to pay close attention to.

Shareholders, though, have brushed their concerns aside and cheered the growth in its core business. NVIDIA is busy consolidating its position in the industry with or without ARM. Numbers are definitely on NVIDIA’s side for now as the company pulls all the stops to be a cut above the rest!

Market Reaction
NVDA ended at $316.75, up 8.25%. Shares are up 141% this year and crossed $800B in market value.

Company Snapshot 📈

NVDA $316.75 +24.14 (8.25%)

Analyst Ratings (42 Analysts) BUY 81%  HOLD 14%  SELL 5%

Newsworthy 📰

Plans: Apple looking to launch a self-driving EV in 2025 with a custom chip (AAPL +2.85%)

No Clarity: Macy’s CEO says no decisions have been made yet about spinning off e-commerce unit (M +21.17%)

Downward: Alibaba shares drop as it slashes guidance and earnings plunge on China’s slowdown (BABA -11.13%)

Later Today 🕒

  • SYSCO Corp Earnings (SYY)
  • Foot Locker Inc. Earnings (FL)
  • The Buckle Inc. Earnings (BKE)

Today’s Market Terminology: Arbitrage

Arbitrage is the simultaneous purchase and sale of the same security in different markets to benefit from price variations prevailing in different markets

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