NVDA Stock Prediction: Nvidia Deserves A Price Target of $630

motek 1This NVDA stock prediction article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • My July 27 prediction that NVDA will trade above $460 from its pursuit of ARM Holdings came true.
  • NVDA is again trading below $530. NVDA still deserves a 1-year price target of $630. Owning ARM Holdings is a massive tailwind for Nvidia.
  • SoftBank has agreed to Nvidia’s offer of up to $40 billion offer for ARM Holdings. Nvidia will pay $12 billion in cash plus $21.5 billion in NVDA common shares.
  • Nvidia also agreed to grant $1.5 billion equity to ARM Holdings’ employees and a future bonus payout of $5 billion in cash or NVDA stock based on future financial performance of ARM Holdings.
  • Nvidia promised to retain ARM Holdings as a British company. Nvidia said it will not revise the open-licensing business model. These promises should appease government regulators.

Congratulations to those won big from my July 27 wager that Nvidia (NVDA) will trade above $460. It was a no-brainer bull catalyst that Nvidia was negotiating to buy ARM Holding from SoftBank (SOFTBY). NVDA set a record 52-week high of $589.02 last September 2. Subject to regulatory approvals, Nvidia is betting up to $40 billion in cash/common stock that ARM Holdings will make it the biggest data center and Artificial Intelligence computing company.

nvda stock prediction recent result
(Source: Seeking Alpha)

Yes, NVDA now trades at very high valuation ratios. However, a successful buyout of  ARM Holdings complements Nvidia’s recent $7 billion purchase of Mellanox. Mellanox plus ARM Holdings’ Neoverse N1 cloud-to-edge platform are potent tailwinds for Nvidia’s data center business. One or two years from now, Nvidia’s data center business will likely generate quarterly revenue of $3.2 billion. As of its latest report, Nvidia’s Data Center segment touts $1.752 billion in quarterly revenue. Data center sales are now greater than Nvidia’s old core business of selling graphics cards to gamers.

(Source: Nvidia IR)

The 185.61% one-year price performance of NVDA is because of the chart below. Investors were elated by the rapid ascension of the Data Center’s quarterly revenue. Going forward, bulls will keep pushing NVDA to new 52-week highs because Mellanox and ARM Holdings are obvious growth drivers. It took less than five recent quarters for Nvidia to more than double up its Data Center segment’s quarterly sales.

(Source: Timothy Prickett Morgan/The Next Platform)

Nvidia Is Paying Well For A High-Quality Company

Nvidia will pay $2 billion immediately after SoftBank and ARM Holdings sign the definitive agreement. After regulators approve this deal, Nvidia will pay another $10 billion in cash to SoftBank. Nvidia will also issue 44.3 million common shares of NVDA (worth $21.5 billion). Terms of the sale also require Nvidia to issue $1.5 billion in equity to ARM Holdings’ employees. SoftBank may also get additional $5 billion payment (cash and/or NVDA shares) depending on the future financial performance of ARM Holdings.

As per the chart below, ARM Holdings’ is a cash machine that generates annual revenue of $1.8 billion. This British company also operates at around 94% gross margin. ARM Holdings designs energy-efficient RISC processors and licenses them to hundreds of multinational companies.

(Source: NVDA)

Nvidia’s offer of up to $40 billion gives ARM Holdings a 22x Price/Sales valuation.  Yes, it is high.  However, it is still lower than NVDA’s Price/Sales valuation of 24.84x. SoftBank demanded a high price because it wants parity from Nvidia’s own high valuation. This is fair. ARM’S licensing business is a high-margin business that would only get better once its RISC processor designs and IP gets integrated with Nvidia’s consumer and data center GPUs.

The biggest technology companies are licensees of ARM Holdings. Majority of them will likely appreciate a better integrated GPU from Nvidia for future generations of RISC processors. This combination covers every industry imaginable. ARM processors are inside consumer, industrial, and cloud computing hardware.

nvda stock prediction drivers
(Source: Nvidia)

Self-driving cars, robots, laptops, drones, smartphones, tablets, and security cameras can sure benefit from Nvidia-branded integrated GPUs. The Mali brand of integrated graphics and image processors of ARM Holdings are still inferior to Qualcomm’s (QCOM) Adreno iGPUs. Combining a more powerful Nvidia GPU in ARM Holdings-designed RISC processors can lead to higher licensing revenue and hardware sales.

(Source: TechCenturion)

Going forward, I expect ARM Holdings to add $2 billion in new high-margin annual sales to NVDA. The obvious synergy between these two companies will probably help this figure experience a forward CAGR of 10 to 15%. The symbiotic effect of being able to integrate better-performing Nvidia GPUs on IoT, industrial, and data center-bound ARM processors will probably add another $500 million to $1 billion in future annual sales to Nvidia.

Paying $40 billion (in cash + stock) to get $3 billion yearly sales is not overpaying.

Final Thoughts

There is little risk that government regulators will reject Nvidia’s proposal to buy ARM Holdings. Nvidia has publicly stated that it will maintain ARM Holdings’ open-licensing business policy. Nvidia will not refuse new applications or renewals of ARM Holdings’ licensing. Of course, Nvidia can still covertly develop the best RISC processors for its data center/console/mobile processors.

Nvidia has also committed to keep ARM Holdings as a United Kingdom company. This should appease China. The lingering anti-China position of America’s current President is a compelling reason for Nvidia to keep ARM Holdings firmly British.

The issuance of new 44. 3 million shares of NVDA to help pay for ARM Holdings is just a minor inconvenience. Nvidia’s market cap is now more than $320 million (616 million shares outstanding). A share dilution of less than 10% is not compelling reason for short-sellers to attack NVDA. Issuing new shares is certainly better than Nvidia loading up on new debt just to finance its acquisitions.

My buy recommendation for NVDA is backed by its very bullish one-year forecast from I Know First. I am therefore highly confident that NVDA will trade above $600 after it closes its acquisition of ARM Holdings. One year from now, NVDA will most likely trade above $630.

nvda stock prediction

Please note that the stock-picking AI of I Know First has a very high 0.74 predictability score on NVDA’s one-year market trend forecasts. It is best to always trust the accurate prediction system of I Know First.

Past Success With NVDA Stock Prediction

I Know First has been bullish with its AI NVDA stock forecast consistently in the past. On April 1, 2020, the I Know First algorithm issued a bullish forecast for Nvidia stock price. The AI-driven NVDA stock prediction was successful on three months horizon resulting in roughly 45% gain since the forecast date and it continues to look promising on the longer time horizon. See the chart below.

past nvda Stock prediction

This bullish NVDA stock prediction was sent to the current I Know First subscribers on November 19, 2019.

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