theStreetFika: Scones, Sips, Strategy & Stocks

Don't let Intel's stock price fool you - it's not having a great time and unless it undergoes a massive transformation, it's going to be on life support very soon. I held onto its stock for over a decade then early last year I gave up and decided it to dump it all in favor of Nvidia.  Intel is no longer the unquestioned heartthrob of the $400 billion chip industry. It's far from it; its problems run deep and the last decade has been a tale of many massive missed opportunities. First, there was the epic Mobile failure. Despite the boom and skyrocketing revenues in the Mobile space for over two decades, Intel got zilch. How did that happen? The short story is that Intel's design was poor - too focused on speed and too dismissive of power management. Intel wasn't even a candidate for the iPhone CPU, and despite years of trying, it couldn’t break into Android either. Despite this colossal failure, Intel prospered and its stock has risen thanks to the explosion i...

In the previous post , I discussed that Nvidia’s deal for Arm is very smart because it was structured as a majority stock acquisition. In this post, I will discuss the strategy driving the acquisition and how Arm will help make Nvidia the most important chip maker in the world. Last July, Nvidia surpassed Intel to become the largest U.S. chip maker by market value. However, by most measures, Nvidia remains a niche player; compared to Intel’s $72 billion in revenue last year, Nvidia’s sales were a little over $11 billion. So how can Nvidia grow to its market value? Nvidia thinks the answer is Arm. This answer is not obvious to everyone, though, because the two companies’ business models couldn’t have been more different. While Nvidia sells vertically integrated solutions and doesn’t share its IP, Arm sells modular designs that are available to everyone in the ecosystem.  Nvidia started as a niche player and made its name making and selling best in class graphic processor units (GPU)...

Last week, Nvidia announced that it is acquiring Arm from SoftBank for $40 billion. Under the terms of the transaction, Nvidia will pay SoftBank $21.5 billion in stock and $12 billion in cash. SoftBank may also receive up to $5 billion in cash or common stock if Arm meets certain financial targets. Finally, Nvidia will issue $1.5 billion in equity to Arm employees.  Let’s meet the two main parties involved in the biggest chip deal in history and evaluate who got the better deal:  SoftBank is a Japanese conglomerate famous for its big bets on the tech sector. Some have worked (e.g. Alibaba) while many have flopped (e.g. WeWork). Arm will join the second group and SoftBank is a loser in this deal. Selling Arm for $32 billion - not including $5 billion in potential add-ons- means that Arm was yet another flop investment. Had SoftBank bought Nvidia shares or, for that matter, an ETF tracking the S&P 500 - which is up 55% since then- it would have gotten a much higher ROI than...

I'm having this delicious NYT Chocolate Mug Cake When it announced its earnings results on August 19th, 2020, Nvidia (NVDA) topped Wall Street’s estimates for both its fiscal 2020 second quarter and its forecast for the rest of the year. More interestingly its data-center sales topped its core gaming business for the first time. What’s making the case for Nvidia ? Nvidia ’s data center business is surging: Nvidia provides GPUs which power the heart of AI and machine learning. Demand for these powerful processors is expected to continue to surge at enterprise data centers (and cloud providers of course) as ML and AI become mainstream and more enterprises go to the cloud.  Gaming is also on the rise: In addition to ML and AI,  GPUs are in high demand for video games. The pandemic has made gaming one major way for a wide range of age groups to socialize virtually. Even better, we are close to the holiday season and major video game console makers such as Nintendo, Sony, Microso...