Nasdaq NVDA Nvidia

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Nvidia (NVDA) is an American multinational company known for integrated circuit manufacturing. I am bullish on the stock.

The company's facing a significant legal headwind regarding its ARM acquisition, which, if completed would add considerable value to the firm via synergies.

Regardless of whether the deal closes or not, Nvidia stock's prospects remain bright. (See Analysts’ Top Stocks on TipRanks)

Momentum

Nvidia's a good momentum play at the moment, with the stock trading above its 50-, 100-, and 200-day moving averages. The stock's trading below its 10-day moving average, as the general market has dipped on the news of the Omicron variant.

This might be a good "buy-the-dip" play, as the RSI has drawn down to below 70.

Earnings & Outlook

Nvidia's Q3 2022 revenue grew by 50.1% year-over-year, beating analyst estimates by $290 million.

Breaking it down by segment, Gaming came in strong across the board with revenue up by 42% year-over-year as RTX and GPU sales formed a cohesive partnership to drive earnings forward. Furthermore, Nvidia's Data Center revenue also reached record numbers with 50% year-over-year growth as a result of strong demand by hyperscale customers for its A100 Tensor core GPU.

Looking ahead, the firm's management expects a strong year-end with Q 4 revenue projected to come in at $7.4 billion and gross margins between 65.3% to 67%. The chipmaker's also sitting with a net deferred tax asset of $745 million, which could be exercised in subsequent earnings periods.

What about the ARM Acquisition?

According to Citigroup (C), Nvidia's odds of acquiring ARM group from Softbank have been slashed from 30% to 5%.

The proposed deal was worth $40 billion, which is more than 2x Nvidia's cash and short-term investment holdings. Considering Nvidia already holds a leverage ratio of 49.1%, it will most likely have to issue additional shares to complete the takeover, subsequently diluting shareholder value.

It's unclear whether the deal is going to pan out or not. ARM would add significant value to Nvidia's upstream, and cost synergies would be the result. However, the deal could be strenuous on the balance sheet, and the stock would most likely lose short-term value.

If the acquisition fails, Nvidia stock should sustain its momentum throughout 2022 due to balance sheet factors.

Wall Street's Take

Wall Street firms generally think the stock is a Strong Buy. Out of 26 ratings by analysts, 24 have been Buys along with two Holds. The average Nvidia price target is $359.75, which presents 19.8% upside potential.

Concluding Thoughts

Nvidia stock is set for upside regardless of the outcome of the ARM acquisition. The company's prospects remain bright after smashing earnings estimates once again.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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