Reports Q4 2021 results on Wednesday, February 24, after the close
Revenue Expectation: $ 4.82 billion
EPS expectation: $ 2.8
When NVIDIA Corp. (NASDAQ :), one of the largest US chip makers, reports its latest earnings, it needs to address a major issue: How are it going to deal with the supply shortages that are starting to affect its customers and sales? growth?
The shortage of chips across the industry has caused prices to rise for some products, while for others there have been delays in processing orders. Car manufacturers are the most affected, as the acute supply of chips they use in their vehicles has forced some to shut down their factories.
Behind this sudden shift – from a to supply constraints – lies the pandemic demand for everything, including cell phones, laptops, cloud computing and game consoles.
California-based NVIDIA is a provider of the key components needed for all of the major, fast-growing industry opportunities, including cloud computing, artificial intelligence, robotic automation, mobile computing and the Internet of Things.
The company has proven over the years that it is far ahead of its rivals in innovation and performance. In September, the Silicon Valley company announced a series of three new gaming graphics cards, based on the latest "Ampere" chip architecture, and said it will double the performance of its previous offering in the "biggest generational leap" in its history.
In the midst of this tremendous growth momentum, which has pushed the stock price up 90% over the past 12 months, NVIDIA has had to resolve its supply constraints to stay ahead. NVDA closed about 1.5% on Tuesday, contributing to the 7% decline since Feb. 15.
Said NVIDIA Chief Financial Officer Colette Kress at a UBS event in December, as quoted by the Wall Street Journal:
“Our aggregate supply continues to be processed every day during this quarter and we hope to see improvements as we move forward, but we expect it to take a few months for overall supply to stabilize against demand. "
Arm Ltd. Deal in Trouble
Another potentially negative development that has tarnished NVIDIA stock in recent weeks is strong opposition from some leading technology companies to the $ 40 billion deal to acquire Arm Ltd. to buy. the heart of the more than 1 billion smartphones sold annually. Chips using the code and layouts are in everything from factory equipment to home electronics.
Alphabet Inc. (NASDAQ :), Microsoft Corporation (NASDAQ 🙂 and Qualcomm Inc. (NASDAQ 🙂 are among companies urging antitrust officials to intervene. According to media reports, at least one of the companies wants the deal to disappear.
This opposition from major technology companies can make it difficult for NVIDIA to gain approval, delay the process, or enforce concessions that turn Arm's value into NVIDIA. In the US, the deal is under review by the Federal Trade Commission, which has opened an in-depth investigation into the merger and sent information requirements to third parties, according to a Bloomberg report.
Despite these negative developments, NVIDIA remains a strong chip name for a long-term portfolio. The company has the right product mix, enabling it to achieve growth in the coming years. According to Jefferies analysts, NVIDIA will own 50% to 80% of the value of the data center market over the next five years.
Bottom Line
After a vigorous run this year, NVIDIA shares could come under pressure as investors take a break from the fast-growing segment of the market. But that correction should be used as an opportunity to build a long position in this stock, which has proven to be a solid choice given its strong growth potential.
