NVDA stock has bounced off its uptrend channel wall in morning trade on September 17, 2020.
At some point in the near future, we could see the U.S. government make a big move to help U.S. semiconductor makers establish manufacturing facilities here inside the U.S.
“A new joint report titled Government Incentives and U.S. Competitiveness in Semiconductor Manufacturing by SIA and the Boston Consulting Group finds the U.S. government has a strategic opportunity to reverse the decades-long trajectory of declining chip manufacturing in America, strengthen national security and make our supply chains more resilient, and make our country one of the most attractive places in the world to produce semiconductors, which are the brains of modern technology. To seize this opportunity, the report finds the federal government must invest boldly in chip manufacturing incentives to make the U.S. more cost-competitive with countries that have offered robust government incentives for years. Doing so would expand chip manufacturing in the U.S., strengthen our country’s economy and national security y, and fortify America’s semiconductor supply chains. Federal manufacturing grants and tax breaks totaling $20-50B would reposition the U.S. from an unattractive investment destination to the most attractive, excluding China, and create as many as 19 new major semiconductor manufacturing facilities, fabs, in the U.S. over the next 10 years, a 27% increase over the current number of U.S. commercial fabs.” said the report from the SIA. Source: https://www.semiconductors.org/wp-content/uploads/2020/09/SIA-Summary-of-Government-Incentives-and-US-Competitiveness-in-Semiconductor-Manufacturing-Report.pdf
On September 15, 2020, Craig-Hallum analyst Richard Shannon raised the firm’s price target on Nvidia (NVDA) to $500 from $480 and keeps a Hold rating on the shares. The analyst believes Nvidia’s proposed acquisition of SoftBank’s (SFTBY) ARM is aimed at creating the datacenter platform that would challenge Intel (INTC) for hegemony. While this presupposes that ARM would make a material dent in x86’s server CPU dominance, Nvidia’s dominant position in acceleration platforms could tip the balance toward it, he contends. Shannon believes it is more than likely that this deal can complete, as the regulatory arguments against are not strong enough, although China could throw a wrench in it if it so chooses. Given that the deal will likely be accretive, that it can be funded with current cash and future cash flows, and that it dilutes current shareholders by 7%, he sees it as a good deal for Shannon shareholders.
Also on September 15, 2020, Needham analyst Rajvindra Gill raised the firm’s price target on Nvidia to $700 from $600 and keeps a Buy rating on the shares. Gill believes the Arm acquisition will be accretive, potentially adding $1.20-$1.65 of EPS in CY22.
Oppenheimer analyst Rick Schafer notes that Nvidia (NVDA) announced the acquisition of ARM from Softbank (SFTBY) in a stock/cash transaction worth up to $40B. The analyst likes the strategic/accretive deal as ARM broadens Nvidia’s AI platform/ecosystem in the company’s core DC market while expanding the company’s reach in smartphone/PC/networking/IoT/etc. He expects ARM to benefit from Nvidia’s R&D scale. Schafer sees regulatory approval, particularly in China, as the biggest hurdle. If allowed to close, the analyst believes Nvidia/ARM will create a leading AI compute platform. He reiterates an Outperform rating and a $550 target on Nvidia’s shares.
On September 13, 2020, Nvidia (NVDA) and SoftBank (SFTBY) announced a definitive agreement under which Nvidia will acquire Arm Limited from SoftBank and the SoftBank Vision Fund in a transaction valued at $40B. The transaction is expected to be immediately accretive to Nvidia’s non-GAAP gross margin and non-GAAP earnings per share. SoftBank will remain committed to Arm’s long-term success through its ownership stake in Nvidia, expected to be under 10 percent, the companies said. Under the terms of the transaction, which has been approved by the boards of directors of Nvidia, SoftBank and Arm, Nvidia will pay to SoftBank a total of $21.5B in Nvidia common stock and $12B in cash, which includes $2B payable at signing. The number of Nvidia shares to be issued at closing is 44.3M, determined using the average closing price of Nvidia common stock for the last 30 trading days. Additionally, SoftBank may receive up to $5B in cash or common stock under an earn-out construct, subject to satisfaction of specific financial performance targets by Arm. Nvidia will also issue $1.5B in equity to Arm employees. Nvidia intends to finance the cash portion of the transaction with balance sheet cash. The transaction does not include Arm’s IoT Services Group. The proposed transaction is subject to customary closing conditions, including the receipt of regulatory approvals for the U.K., China, the European Union and the United States. Completion of the transaction is expected to take place in approximately 18 months.