Stock of the Week: Nvidia up 38% YTD, bulls push during global chip shortage
Nvidia (NVDA), a titan in the graphics card industry, has rallied 40% year to date amid the global chip shortage and a stock-split announcement.
Nvidia (NVDA), a titan in the semiconductor industry, has rallied 40% year to date amid the global chip shortage and a stock-split announcement.
Nvidia is a major leader in graphics cards and since the start of the pandemic in 2020 has managed to rapidly increase its market share.
In this article, we will look at Nvidia’s performance ahead of its stock-split announcement and highlight potential red flags going forward.
Stock on the rise, increase in chip sales
Nvidia shares have been on fire, rallying 22% in the past month and 55% in the past three. Its stock performance has sent Nvidia to new all-time highs, as the company reports a market capitalisation of $500 billion.
NVDA, the leading producer of graphic processing units (GPUs), has seen its stock soar more than 70% compared over the past year. The surge is being driven by the ever-increasing demand from data centres and its acquisition of global chip-designer ARM.
Its growth was also shaped by a huge increase in PC and console sales; In 2020, PC shipments reached 275 million units, a 4.8% increase from 2019 and its highest growth in ten years.
The pandemic forced many to work from home resulting in a spike in home computers and an increase in gaming.
Stock split – how it works
Nvidia has announced it will enact a 4-for-1 split on July 20. This means investors will receive four shares for every one share they own. At the same time, NVIDIA’s stock price will be quartered, from about $700 to $175 when the split occurs. The split-adjusted prices will start from July 20.
Record year for Nvidia
NVIDIA reported a record revenue of $5.66 billion (+84%) for Q1 2021. The company reports record revenue from its Gaming, Data Center and Professional Visualization platforms.
- Record revenue of $5.66 billion (+84% compared to 2020)
- Record Gaming revenue of $2.76 billion (+106 percent)
- Record Data Center revenue of $2.05 billion (+79%)
Red Flags – Chip shortage and Crypto
The Semiconductor Industry Association (SIA) said global chip sales rose 26% to $43.6 billion in May, compared to a year ago. While this was initially good for major chip-market players such as Nvidia, the markets saw a big retraction in July. Curiously, one of the factors hurting Nvidia sales is the cryptocurrency market.
One of the biggest factors supporting Nvidia business (and its stock price) in recent years has been the demand for its chips for use in crypto-mining machines. Unfortunately, cryptocurrency prices (especially Bitcoin) have been in a slump during the past few months. This naturally has affected demand for data-mining chips.
Nvidia’s investors will benefit from the long-term progression of technology. As long as consumers continue to play video games and cars continue to rely more on high-tech chips, demand for Nvidia’s products will remain strong.
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