Please ensure Javascript is enabled for purposes of website accessibility

Why Nvidia Stock Popped Again Today

By Rich Smith – Nov 2, 2021 at 1:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of Nvidia's semiconductor peers just predicted tight chip supplies as far out as 2030.

What happened

For the fourth day in a row, shares of semiconductors specialist Nvidia (NVDA -0.05%) marched higher Tuesday, rising 2.6% through 12:15 p.m. EDT as bad news about the global semiconductor shortage continues to be interpreted as good news for Nvidia.

So what

On Monday, contract semiconductors manufacturer GlobalFoundries (GFS -2.78%) confirmed the results of its successful initial public offering, in which the company floated 55 million shares at an offer price of $47 per share. Although GlobalFoundries enjoyed no immediate "pop" from the offering (its shares actually closed the day down $0.20), those shares have since perked back up and are now trading about $56 a share.

Part of the reason GlobalFoundries stock is so popular -- and I suspect, part of the reason Nvidia's shares have been rising ever since the IPO -- is because over the weekend, GlobalFoundries CEO Tom Caulfield told CNBC that his company is sold out of semiconductor chip production capacity through 2023 -- and furthermore, that "for the better part of the next five to 10 years, we're going to be chasing supply not demand."  

Stock up glowing green arrow climbs on a stock screen.

Image source: Getty Images.

Now what

Now contrast that statement with the more optimistic projections (for consumers) that we've been hearing from companies such as Intel and Tesla over the past few weeks. If you've been hearing lately that the semiconductors shortage might "bottom out" as early as the end of this year (according to Intel) and that it will be "short term" in nature (according to Elon Musk), well, you might be a wee bit nervous about investing in Nvidia stock at 91.5 times earnings, right?

On the other hand, though, if GlobalFoundries is right, and chip supply could remain constrained as far out as 2030 or longer, then buying a bit of Nvidia right now might actually make sense.

Now, throw in an uber-bullish earnings report from ON Semiconductor yesterday, and what I think you have for yourself is a bull market for Nvidia stock this week.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.