Why Nvidia Stock Hit Record High Ahead of Earnings

Nvidia Corp. (NASDAQ: NVDA) was on the upswing Monday after analysts at Needham & Co. underscored their Buy recommendation and raised their target price by $90 a share, to $360 from $270.

Nvidia shares hit an all-time high of $324.17 Monday afternoon, up about 3.7% from the open of $312.30. It closed at $322.62.

On Feb. 19, Nvidia had a record close of $314.70. But like most of the stock market, it plummeted when the COVID-19 pandemic took hold around the world. The stock sank by about 38% in a month, closing at $196.40 on March 16. Since then the price has been trending upward.

Looking Favorably on Acquisition

Rajvindra Gill and his team at Needham indicated that their optimism for the tech stock was based in part on Nvidia’s recent acquisition of Mellanox Technologies. They also mentioned Nvidia’s strong position in gaming. The company is also involved in artificial intelligence.

The $7 billion deal closed on April 27 after being announced more than a year ago. It went through a long regulatory review.

Nvidia’s market cap is roughly $190 billion. Mellanox, a supplier of high-performance, end-to-end interconnect solutions for data center servers and storage systems, is expected to strengthen Nvidia’s balance sheet.

The Mellanox acquisition is the largest since 1993, when Nvidia was founded.The Santa Clara-based Nvidia had the cash in hand to pay for Mellanox. At the end of January, the company reported cash and equivalents of $10.9 billion. The company made no share buybacks last year and paid out only $390 million in dividends. Over the past five years, shares have posted a gain of more than 1,200%.

Mellanox reported record first-quarter earnings last month. Its $428.7 million revenue for the first quarter of 2020 was up by 40.5% over the same period in 2019.

Finding Synergy in Data Center Business

The Nvidia-Mellanox deal brings together two of the world’s leading companies in the high performance and data center computing businesses. The acquisition allows Nvidia to add Mellanox’s high-performance networking technology to its computing capability.

Jensen Huang, founder and chief executive of Nvidia, said of the acquisition:

The expanding use of AI and data science is reshaping computing and data center architectures. With Mellanox, the new Nvidia has end-to-end technologies from AI computing to networking, full-stack offerings from processors to software, and significant scale to advance next-generation data centers. Our combined expertise, supported by a rich ecosystem of partners, will meet the challenge of surging global demand for consumer internet services, and the application of AI and accelerated data science from cloud to edge to robotics.

Eyal Waldman, founder and chief executive of Mellanox, said:

This is a powerful, complementary combination of cultures, technology and ambitions. Our people are enormously enthusiastic about the many opportunities ahead. As Mellanox steps into the next exciting phase of its journey, we will continue to offer cutting-edge solutions and innovative products to our customers and partners. We look forward to bringing NVIDIA products and solutions into our markets, and to bringing Mellanox products and solutions into NVIDIA’s markets. Together, our technologies will provide leading solutions into compute and storage platforms wherever they are required.

CEO to Speak at GPU Tech Conference

Nvidia’s Wall Street performance sets the stage for Huang’s appearance at the company’s GPU Technology Conference. He delivers the keynote address on Thursday.

Nvidia’s first-quarter earnings report is expected on May 21 after the close of trading.

Nvidia released its first product, the Diamond Edge 3D graphics accelerator card, in 1995. A PC-compatible plug-in, the card featured a graphics core based on quadratic texture mapping.

Four years later, the company released the first graphics processing unit (GPU), the GeForce 256, capable of rendering 10 million polygons per second. It was the first step along a path that led to modern GPUs that draw 7 billion polygons per second.

That year, 1999, was also when Nvidia held its initial public offering, selling shares at $12 apiece. Since that IPO, Nvidia’s stock has appreciated by more than 19,000%.

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