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Why NVIDIA Stock Was Up Today

By Brett Schafer - Jun 28, 2021 at 11:31AM

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The company's proposed acquisition of Arm is getting support from a competitor.

What happened

Shares of chipmaker NVIDIA (NVDA 4.28%) were up on Monday after competitor Broadcom (AVGO 2.35%) came out in support of the company's proposed acquisition of U.K. chip designer Arm. NVIDIA also announced a new partnership with Alphabet's (GOOG 2.36%) (GOOGL 2.39%) Google to create an artificial intelligence (AI) and 5G innovation hub. Shares were up by about 5% as of 11:48 a.m. EDT today.

A computer chip on a circuit board.

Image source: Getty Images.

So what

NVIDIA's proposed acquisition of Arm spooked some of its chipmaking competitors, as the companies were worried that NVIDIA could use monopolistic tactics by restricting the use of Arm's technology or raising its prices to unsustainable levels. However, in a recent statement, Broadcom CEO Hock Tan came out in support of the Arm deal, saying that NVIDIA has assured the chip industry that it will invest in Arm's technology and keep it open for all companies to use. While the acquisition still hasn't gone through, this statement was likely well received by investors.

On other fronts, NVIDIA is partnering with Google Cloud to combine both companies' capabilities in AI, building a platform that other enterprises can access. It will combine Google Cloud's Anthos platform and NVIDIA's accelerated computing hardware to sell AI-focused cloud tools.

Now what

Shares of NVIDIA are up almost 250% in the last three years as the company has grown its gaming, cryptocurrency, and data-center chip businesses. The company's market cap is $475 billion, and the stock now trades at a forward price-to-earnings ratio (P/E) of 47, which is expensive relative to the average stock on the market.

But if you are an investor in this company, there's no reason to sell your shares anytime soon. With all these partnerships, the potential Arm deal, and the continued growth of the computer chip industry, NVIDIA should be able to grow its earnings for years to come.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and NVIDIA. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.

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Stocks Mentioned

NVIDIA Corporation Stock Quote
NVIDIA Corporation
$187.09 (4.28%) $7.67
Broadcom Limited Stock Quote
Broadcom Limited
$558.23 (2.35%) $12.80
Alphabet Inc. Stock Quote
Alphabet Inc.
$121.68 (2.39%) $2.84
Alphabet Inc. Stock Quote
Alphabet Inc.
$122.65 (2.36%) $2.83

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