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Does the NVIDIA Rally have extra fuel within the tank?

NVIDIA (NASDAQ: NVDA) has certainly been a leader in the market when it comes to chip stocks over the past several years. It's the kind of company that is in …

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July
30, 2021

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This story originally appeared on MarketBeat

NVIDIA (NASDAQ: NVDA) has certainly been a leader in the market for chip stocks over the past few years. It's the type of company that operates in some of the most exciting and innovative industries in the world, and with a global semiconductor shortage fueling demand for NVIDIA products, there's a good chance the company will make strong profits for the rest of the year.

With that in mind, the stock has already rallied significantly in 2021 thanks to a stock split, causing many investors to ponder how much upside potential this semiconductor giant still has in store. Does the NVIDIA rally have any gas left in the tank? If AMD's recent earnings are any indication, the answer is yes. NVIDIA is seeing massive growth in both its video games and data center segments and could have another positive catalyst on the horizon if the company can overcome regulatory hurdles and complete the Arm acquisition. Let's take a closer look at a few reasons why NVIDIA stock will soar in the months ahead.

An ideal stock for tech investors

Named an artificial intelligence computing company, NVIDIA develops and markets graphics and mobile processors for PCs, workstations, and wireless devices such as smartphones. It's an ideal stock for technology investors to hold long term, especially as the company benefits from multiple technology-driven tailwinds. These trends should benefit NVIDIA for many years to come, which means there is still a lot of profit ahead for shareholders.

The company's platforms address four major markets, games, professional visualization, data centers and automobiles, all of which are growing at a rapid pace. NVIDIA's graphics cards are known in the gaming community for delivering incredible performance and realism, while the company's data center products are a great way for investors to ride the wave of companies moving their operations to the cloud. There are also some very attractive opportunities for the company in the autonomous driving and crypto space that add up the stock's upside.

The curious case of stock splits

As mentioned earlier, NVIDIA announced a 4-for-1 stock split earlier this year that sparked a rally for the ages. While these events don't change a company's market capitalization, are neutral on its stock price, and simply make stocks more affordable to new investors, they can certainly be an optimistic catalyst for a stock, as we've seen here at NVIDIA. If you're wondering what happens next for NVIDIA after this event officially occurs, it might be helpful to look at what has happened to the shares in the past after the split.

According to a study by the Wall Street Journal, "the shares of companies that share their shares have significantly outperformed their benchmark in the months that followed and earned an average of 1 percentage point more than the benchmark in the six months following the split". Given these statistics, and the fact that NVIDIA's stock split could add more liquidity to the market and allow new investors to add stocks of this top-tier company at lower prices, one could argue that there is more upside potential for stocks in the near future.

The acquisition of ARM Holdings could mark the next step

While it is hard to count on high-profile acquisitions to cross the finish line, given all the regulatory hurdles a company has to contend with, NVIDIA's proposed $ 40 billion acquisition of ARM Holdings can be expected to be another very much positive catalyst for stock price when the deal is closed. ARM Holdings is a strong chip designer whose CPU chips power more than 95% of the world's smartphones, and the acquisition could bring NVIDIA strong synergies and top-line growth. The acquisition would also help the company expand AI computing around the world.

Adding the world's largest chip design licensor to NVIDIA's business would be a huge step that would create a true powerhouse for chip manufacturing. However, there are some concerns that the deal will fail as it was announced about a year ago and has not yet received regulatory approval in the UK. If the deal goes through, it could push the stock rally to new highs and mean big things for the future of the semiconductor industry. However, should the deal fail, investors can still use the dip to boost NVIDIA stock at more attractive prices.

NVIDIA is part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.

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