NVIDIA (NASDAQ: NVDA) shares quickly caught up after the February drop in prices and are now trading at all-time highs again. The same cannot be said about the securities of its competitors – Intel (NASDAQ: INTC) and Advanced Micro Devices (NASDAQ: AMD)… Their share prices fell.
We briefly reviewed the situation with the rise in NVIDIA shares in another article by R Blog, and today we will analyze it in more detail and try to answer the question of which of the three companies to choose for potential investments.
Events that are now affecting the value of shares of NVIDIA and its competitors began to develop back in 2020. Already Hermann Hauser, co-founder of Arm Limited, said that NVIDIA could become a monopoly in the processor market in the future. But first things first.
In September 2020, NVIDIA announced plans to acquire from SoftBank Group Corp (OTC: SFTBY) its competitor is the British company Arm Limited.
Arm Limited Is one of the world’s largest processor developers focused on portable and mobile devices as well as servers and supercomputers. For 2020, Arm products were the most popular among CPUs.
Opponents of the NVIDIA and Arm merger
Hermann Hauser is still trying to thwart the deal, pointing out that Britain has long dreamed of a company like Apple (NASDAQ: AAPL), and Arm can achieve comparable success.
The sale of NVIDIA may lead to the fact that the corporation will move the Arm headquarters to the United States, and Britain will lose thousands of jobs, but most importantly, it will lose a promising global company, and NVIDIA will take a monopoly position in the processor market.
Hauser wrote an open letter to the British Prime Minister asking him to discourage the takeover. Other companies came to his aid, which, no matter how ridiculous it may sound, themselves occupy a monopoly position in the market. This refers to Alphabet (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT).
Apple is also concerned about the deal because Arm products are used in 90% of the world’s mobile devices, including those from Apple. The possibility of a merger worries and QUALCOMM Incorporated (NASDAQ: QCOM)since the company is the main client of Arm Limited. If NVIDIA manages to complete the deal, then they will all become dependent on this corporation.
GPU NVIDIA Grace
NVIDIA decided not to wait for the approval of the deal and continued to work with Arm Limited. The result of their activities is the new NVIDIA Grace central processor.
In April 2021, NVIDIA announced its first NVIDIA Grace data center processor, which is based on the Arm architecture. Servers equipped with this processor deliver 10 times the performance of the fastest servers in the world.
GPU NVIDIA Grace Is a highly specialized processor designed for use in the field of niche computing, as well as for training new generation NLP (Natural Language Processing) models with more than 1 trillion parameters.
The Swiss Supercomputing Center and the US National Laboratory will be the first organizations to build new computers based on NVIDIA Grace processes.
Investor reaction to the presentation
The presentation of the processor led to a sharp increase in demand for shares among investors, which was reflected in their value. In a short time, the securities rose in price by 10%. Immediately after this event, Wall Street analysts raised their target prices for securities to 800 USD.
Whether the takeover takes place or not, NVIDIA is already entering the CPU market. The corporation has never had a data center CPU before, and NVIDIA has always had to rely on Intel and AMD for this. Now the need for them disappears. NVIDIA will be able to create data centers by completing them exclusively with its own processors.
A GPU and CPU from the same company is a very powerful mixture, and such a company definitely has a future. The Arm takeover will combine NVIDIA’s AI computing power with Arm’s vast processor ecosystem.
A bundle of NVIDIA GPUs and CPUs can be compared to climbing Mount Everest, and the takeover of Arm Limited is like flying into space.
How competitors reacted to this event
Intel shares were trading at historic highs on the day of the presentation. But by the end of the trading session, the quotes dropped by 5%. Over the next two days, the share price continued to fall.
AMD also closed in the red, losing about 5% in value.
Is it possible to give up INTL and AMD
Definitely not. Firstly, the NVIDIA Grace processor will not be available until 2023, and it is not intended for the mainstream. This is a highly specialized processor that is installed on special computers.
NVIDIA will continue to partner with Intel and AMD in the personal computer market. And the current fall in prices in the shares of competitors, investors used for speculative purchases.
As a result, AMD shares won back the fall on the fourth day after the presentation. Intel shares also bounced off support by 64 USD and gained 2%.
Intel invests in plant construction
If you try to look 3 years ahead, then NVIDIA may become a serious threat to Intel and AMD by this time. But if we assess the current situation, the rapid development of electric vehicles and the transition to remote work provoked a sharp increase in demand for semiconductors, which ultimately led to a shortage of this product.
In addition to this, the confrontation between the US and China is forcing the US government to develop plans to support its own semiconductor manufacturers. And here Intel comes out on top.
It is already allocating USD 20 billion for the construction of two plants, that is, it increases production volumes and enters the contract manufacturing market. As a result, in addition to its own investments, the US government can also provide financial support.
For Intel, NVIDIA is only increasing competition in this market, but judging by the global demand for semiconductors, Intel will have enough money to continue to improve its product line.
AMD enters the cryptocurrency mining market
AMD is also awake. The shortage of semiconductors has a positive effect on her income. According to the latest quarterly report, the company’s revenue grew by 52% compared to the same period last year.
The company plans to enter the cryptocurrency mining market. To do this, AMD is developing a new GPU designed primarily for Ethereum mining. Thus, AMD plans to gain a foothold in the cryptocurrency market, where NVIDIA has firmly established itself.
As a result, neither Intel nor AMD should be discounted in the near future. These companies are still attractive for investments, especially during the explosive growth of the semiconductor market. Now the demand is so high that the products of even relatively weak players will be in demand, and AMD and Intel cannot be classified as weak players.
NVIDIA financial performance
Let’s go back to NVIDIA. We will know the financial results for the first quarter only in May. Now you can pay attention to the data for the 4th quarter of 2020.
The company’s revenue reached record levels and exceeded 5 billion USD, which is 60% more than in the same period last year. Sales to the gaming market are also at record levels: their growth was 67% and reached 2.5 billion USD.
Sales for data centers were also not far behind, which increased by 97% to USD 1.9 billion. Sales data for the data center makes it clear which segment is gaining momentum. Unsurprisingly, NVIDIA has developed a processor for this market.
During the conference on earnings reports, the corporation also provided a strong forecast for the 1st quarter of 2021, according to which the revenue is expected to reach a value of 5.3 billion USD, which is 72% more than in the same quarter of 2020.
NVIDIA’s assets amount to USD 28 billion, and all the company’s liabilities to creditors do not exceed USD 12 billion, while the amount of free funds in the corporation’s account exceeded USD 11.5 billion. Financially, NVIDIA is a great investment company.
Whether NVIDIA can take over Arm Limited or not, the NVIDIA Grace processor is already taking the company into a new market.
Arm Limited, with revenues of USD 2 billion per year, generates net profit of only USD 50 million. Softbank can receive 31 billion USD from the sale of the company. With such a net profit, Arm will not be able to earn 31 billion USD for SoftBank even in the current century. From this point of view, it is profitable for the parent company to sell Arm.
NVIDIA will be able to unleash the full potential of Arm Limited and make significant progress in the application of artificial intelligence to users’ devices.
Yes, after the merger, the corporation can take a dominant position in the market, but the faster development of artificial intelligence is at stake. And here there is already a global question of domination. Whoever owns artificial intelligence is the world leader. Therefore, for the United States, this is a welcome deal, which cannot be said about China. The UK faces a tough choice in this situation.
In any case, the investment in NVIDIA is justified at this stage. The only thing that scares me is that it’s all too simple, usually in such situations something can go wrong. Therefore, when choosing an investment in NVIDIA, in no case exceed acceptable risks.
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