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Nvidia’s ARM CPU Ambitions May Undermine its Pending Acquisition of ARM; Shares Overvalued

Abhinav Davuluri, CFA Sector Strategist

Analyst Note

| Abhinav Davuluri, CFA |

On April 12, Nvidia hosted its analyst day at which management provided updates for the firm’s efforts in major segments such as gaming, data center, and automotive, including its first ARM-based server CPU for AI purposes. In our view, the common theme of the presentations was that Nvidia is vying to be more than just a chip provider by offering a platform that layers software and support on top of its hardware products. While we applaud this strategy, we maintain our view that major customers ranging from cloud vendors to automakers pursuing self-driving vehicles could be reluctant placing all their compute eggs in the Nvidia AI basket. We concede Nvidia’s first mover advantage in artificial intelligence and key applications will allow it to generate meaningful growth going forward (mid-teens growth through fiscal 2026). However, we continue to view shares of narrow-moat, positive-trend Nvidia as overvalued relative to our unchanged fair value estimate due to competitive forces that appear disregarded by the current market narrative.

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Company Profile

Business Description

Nvidia is the leading designer of graphics processing units that enhance the experience on computing platforms. The firm's chips are used in a variety of end markets, including high-end PCs for gaming, data centers, and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm's graphics processing units.

2788 San Tomas Expressway
Santa Clara, CA, 95051
T +1 408 486-2000
Sector Technology
Industry Semiconductors
Most Recent Earnings Jan 31, 2021
Fiscal Year End Jan 30, 2022
Stock Type Cyclical
Employees 18,975