The past nine months have been nothing less than miserable for Nvidia (NASDAQ:NVDA). Since peaking near $293 per share in October of last year, Nvidia stock price has dropped to a low of $124.46, and its couple of rebound efforts in the meantime have been less than permanent.
The current Nvidia stock price near $163 is still just over half of what it was less than a year ago.
Certainly the underpinnings of NVDA’s weakness are understandable. They include the rebirth of rival Advanced Micro Devices (NASDAQ:AMD), the implosion of the cryptocurrency mining industry and a tariff war with China, all of which are still key factors weighing on investors’ minds.
The degree of the punishment doesn’t fit the scope of the crime, however, and three recent developments may well prove to be the excuse sidelined bulls are waiting for to file back into NVDA.
RTX Super Cards
Whether it’s by design or just a simple coincidence is unclear, but the two big graphics processing powerhouses — AMD and Nvidia — rarely launch new products at the same time.
That dynamic let Advanced Micro Devices steal some graphics processing unit (GPU) market share last quarter, driven by purchases of AMD’s then-new 7 nanometer Radeon VII as well as its updated Polaris family.
NVDA appears to have only been biding its time, however. The company’s new GeForce RTX 2070 Super and GeForce RTX 2060 Super graphics cards, launching this month, deliver more power at the same price AMD is charging for its most comparable discreet GPUs.
The current quarter could be better than expected for NVDA.
Getting a Cheap Price From Samsung
Rather than tapping Taiwan Semiconductor Manufacturing (NYSE:TSM) as the manufacturer of its Ampere GPUs slated to debut in 2020, NVDA has asked Samsung Electronics (OTCMKTS:SSNLF) to handle the load. That may mean little on the surface to the layperson, but to technophiles, it matters.
Details of the deal are scant, but most credible rumors seem to suggest that Samsung offered Nvidia a price it couldn’t refuse. Either NVDA will enjoy wide margins on the GPUs or it will be able to pass those savings along to customers.
It’s often a risky move to switch suppliers and contracted manufacturers. Samsung has done similar work for NVDA in the past, though, and the Korean firm isn’t exactly an unknown name in the business.
Finally, in March of this year, Nvidia announced that it intended to buy Israel’s Mellanox Technologies (NASDAQ:MLNX), which makes internet switches and adapters, offering $6.9 billion in cash for the company.
China, however, could still scuttle the deal.
Chinese regulators could claim the pairing violates its antitrust standards. It’s a stretched argument, but that scenario could still play out And, given the trade war tensions in place now, Beijing could easily run such interference for purely political reasons.
Following a relatively amicable G20 summit that ended in an agreement to at least not impose any new tariffs on trade between China and the United States, however, China may choose to offer another olive branch by not impeding the acquisition.
Mellanox would provide Nvidia with an even stronger hold on the data center market.
The Bottom Line on NVDA Stock
Don’t kid yourself. For better or worse,rhetoric and perception has done most of the damage to Nvidia stock, and it’s a change in the rhetoric and perception that will lift Nvidia stock price again. This is, as much as anything else, a psychological situation.
None of the three aforementioned developments is earth-shattering, but all are high-visibility developments that can quickly improve sentiment towards Nvidia stock, setting the stage for a sizable rebound.
But there’s still the impasse with China, which supplies Nvidia with half of its revenue. Even with no new tariffs being established, existing ones remain in place. There’s little doubt that NVDA has felt their impact.
Eventually, however, the tariffs will be rescinded or Nvidia will figure out a way to adapt to them. The deeper dive into data centers is one such adaptation. Switching production of its GPU to Samsung is another.
Meanwhile,analysts’ average price target for Nvidia stock is about $182; the most bullish analyst has a $225 price target on the name. Though those are forward-looking targets on NVDA, the company’s got enough fresh firepower in its arsenal to justify prices somewhere between those two figures.
It increasingly looks like investors are starting to recognize that reality, too.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.