Investing in Nvidia Stock (NVDA)

On Sept. 13, 2020, NVIDIA announced that it had agreed to acquire Arm Ltd., a U.K.-based semiconductor and software company specializing in AI, from Japan-based SoftBank Group Corp. (SFTBY) and the SoftBank Vision Fund for $40 billion. NVIDIA said that it expected the transaction to close in approximately 18 months. But the deal has come under intense scrutiny from regulators worldwide, and is thus unlikely to be completed within the original timeframe, if at all.

On Dec. 2, 2021, the U.S. Federal Trade Commission (FTC) sued to block the acquisition on antitrust concerns after a unanimous vote by commission members. The FTC said that the combination of the two chip companies would give NVIDIA unlawful control over technology that rival firms need to develop competing products. The commission also said that the combination would create the potential for a stifling of innovation in next-generation technologies, such as technologies used to power data centers and driver-assistance systems in cars. An administrative trial is scheduled to begin on Aug. 9, 2022, nearly two years after the deal was announced.

Weeks earlier, on Nov. 16, 2021, the U.K.’s antitrust regulator, the Competition and Markets Authority (CMA), launched an expanded investigation into the proposed deal. The CMA said that it would be looking into antitrust concerns and national security issues associated with the acquisition. The CMA’s latest investigation follows an initial Phase One investigation into the potential competition implications of the deal. The new Phase Two investigation is expected to take 24 weeks before a final report is delivered to U.K. Digital Secretary Nadine Dorries. On Jan. 10, 2022, both NVIDIA and Arm submitted a 28-page report to the CMA outlining why the deal should be approved. In addition to U.S. and U.K. regulators, the proposed NVIDIA-Arm deal faces scrutiny from regulators in the European Union and China.

On Feb. 7, 2022, SoftBank Group and NVIDIA announced that they were ending talks of the acquisition due to “significant regulatory challenges.” Arm licenses significant technologies used in chips by NVDIAs rivals which raised major antitrust concerns to regulators who believed that NVIDIA could use to give its products a major advantage. SoftBank is now looking into a potential IPO for Arm.

By late 2020, it was apparent that a global semiconductor shortage was underway. This was creating major, escalating disruptions for consumers and for many global technology, auto, and consumer electronics companies that use chips in the products they make and sell. The reasons for the shortage, which is continuing, are numerous. They include: supply problems due to factory closures and severe weather amid the COVID-19 pandemic, sudden spikes in demand for chips by consumers and companies, and also an unexpected demand surge from cryptocurrency miners.

This crisis has proved to be a boon to NVIDIA. The company’s chips are used in gaming consoles and data centers, which have seen soaring demand during the pandemic. The company’s quarterly revenue rose 50% year over year (YOY) to hit a new record of $7.1 billion in Q3 FY 2022, which ended Oct. 31, 2021. The company said that it achieved record data center revenue, which rose 55% YOY, and record gaming revenue, up 42% YOY.

In a conference call with analysts, CEO Jensen Huang said that he felt very good about the company’s supply situation, despite the chip shortage. While soaring chip demand is driving NVIDIA’s record financial results, the company still has been concerned about possible shortages because it’s a “fabless company” (see the FAQs section below). That means NVIDIA does not manufacture its own chips. Instead, it designs chips and outsources the manufacturing to third-party companies to do the fabrication. NVIDIA could thus still be affected by the shortage if its third-party suppliers cannot manufacture chips fast enough to meet soaring demand.

However, the supply situation is expected to see some improvement in 2022, reducing the risk of a supply disruption for NVIDIA. J.P. Morgan Research said in early December 2021 that semiconductor companies it covers are increasing their capital expenditures significantly to meet demand, which should help to alleviate the shortage.

NVIDIA’s GPUs once were primarily designed for PC graphics and the video game industry. But, as mentioned above, the speed and efficiency at which GPUs can solve complex computational problems made them ideal for technologies like AI and machine learning as well as cryptocurrency mining. Miners of cryptocurrency use computers to verify transactions that take place on a cryptocurrency’s blockchain by solving complex mathematical problems. Miners once depended soley on central processing units (CPUs) to solve these problems, but CPUs’ central role has been eclipsed by the faster and more efficient GPUs.

The 2017 boom in cryptocurrency sent the prices of GPUs skyrocketing. Graphics cards that would normally sell for $800 were being resold for as much as $2,000 as miners represented a whole new source of demand in addition to gamers. NVIDIA said in an earnings call with analysts in 2018 that inventory for its graphics cards was at a record low, partly due to strong demand coming from the cryptocurrency market. But when that market cooled off in 2018, NVIDIA was left with months worth of expensive inventory that it found hard to sell to price-conscious gamers. The miners exacerbated the oversupply problem by unloading their now-unwanted GPUs into the secondary market.

The wild swings in demand in the cryptocurrency market have presented a significant challenge to NVIDIA and other chipmakers. The most recent boom, concurrent with the pandemic, prompted NVIDIA to develop a plan for managing the cryptocurrency boom-bust cycle. In February 2021, NVIDIA said it was taking two steps: first, it was redesigning its gaming GPUs to make them less efficient for mining cryptocurrencies; and second, it also was introducing a processing chip specifically for miners. The new chip is called the Cryptocurrency Mining Processor (CMP). The CMP is designed for optimal mining efficiency, but it doesn’t do graphics. The solution aims to reduce the volatility in GPU prices for gamers while offering a product designed specifically for cryptocurrency mining. CMP products generated revenue of $155 million in Q1 FY 2022, ended May 2, 2021, the first quarter for which the products were available. In the second and third quarters, CMP generated $266 million and $105 million, respectively.

Co-founder Jensen Huang is NVIDIA’s CEO and president. He is ranked 34th on the Forbes 400 list of the richest Americans with a net worth of $21.3 billion, as of Jan. 28, 2022.

Yes. NVIDIA currently pays a quarterly cash dividend of $0.04 per share, according to the company’s Q3 FY 2022 earnings press release dated Nov. 17, 2021.

No. NVIDIA is a “fabless company,” which means it designs its semiconductor chips but outsources the fabrication to another company. Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics Co. Ltd. (SSNLF) are two companies that fabricate chips for NVIDIA.

Yes. NVIDIA’s headquarters are located in Santa Clara, California. But the company also has more than 50 offices throughout the world.

NVIDIA has split its stock five times:

• July 20, 2021: a 4-for-1 split.
• Sept. 11, 2007: a 3-for-2 split.
• April 7, 2006: a 2-for-1 split.
• Sept. 12, 2001 : a 2-for-1 split.
• June 27, 2000: a 2-for-1 split.