NVIDIA is hosting its investor day event tomorrow and many Wall Street analysts are hoping that Huang and Co. will shed some light on NVIDIA’s (NASDAQ:NVDA) move to buy Mellanox for nearly $7 billion, as well as the company’s upcoming products.
The maker of all things GeForce and indeed the world’s largest PC gaming hardware company announced they were acquiring Mellanox Technologies for $6.9 billion just a handful of days ago. To cite a bit from our coverage of the takeover: “Mellanox Technologies Inc.(NASDAQ:MLNX 117.75 -0.19%) is a networking company specializing in fast interconnects for datacenters. Their focus on data center networking uses various technologies including Ethernet, InfiniBand/VPI to Multi-Host depending on customer requirements.”
Key NVIDIA Questions: 7nm cards timing and thinking behind Mellanox purchase
Analysts are clamoring to understand the true implications of the large purchase of Mellanox and thus far haven’t really received any strategic rationale behind the move from NVIDIA. How will their technical expertise and product portfolio integrate with what NVIDIA currently has?
Others are looking to NVIDIA’s traditional business model, its regular cadence of hardware upgrades to its mainline gaming brand, Geforce. NVIDIA has been stuck on TSMC’s 16FF process since 2016 and has just about maxed out what they can currently do using that production line.
Rival AMD (NASDAQ:AMD) launched a surprise with the Vega VII, a card constructed on TSMC’s cutting edge 7FF lithography method and now all eyes are on NVIDIA for their own products on 7FF.
The Turing line of cards, launched in the latter parts of 2018, hasn’t quite been the home-run that Pascal, released in 2016, was. Prices were simply too high given performance increases and those prices were driven by large die sizes which 7FF would solve nicely.
Here are some of what the analysts are looking for:
Citi, Atif Malik
Malik asked whether “NVIDIA grew too much too fast,” and what a normalized growth trajectory will look like given increasing competition. Citi is looking for more information about the Mellanox deal, and also said they would like to get a better feel for NVIDIA’s growth trajectory.
Rosenblatt Securities, Hans Mosesmann
The meeting “should start the process for investors to move beyond the year of pain inflicted by crypto related GPU inventories,” a reference to the boom and subsequent bust cycle we saw as used mining cards flooded the market.
They are also looking forward to discussions “that should help the Street understand the reasoning behind the unusual move by NVIDIA.” They noted that AMD has launched a 7nm-based product, what is NVIDIA’s answer and when?
Bernstein, Stacy Rasgon
Rasgon wants to understand exactly why NVIDIA purchased Mellanox outright versus partnering or licensing their technology. She also expresses doubt NVIDIA can reach the targets its set for the second half of 2019.
The 2019 outlook would require “a rapid return to strong sequential datacenter growth, and gaming revenues to exit the year somewhere close to $2B, well above prior peaks,” Bernstein writes. “How much visibility does NVDA have into the 2H (we suspect very little given recent events)? What gives them confidence that they can achieve what they have set the Street to?”
Morgan Stanley, Joseph Moore
“We would love to see a 5 year forecast that is easier to tie to a revenue and earnings model.” NVIDIA has earned “substantial investor confidence” in the semiconductor sector, “and a longer term revenue forecast with clear milestones would be very helpful when looking through this soft patch in cloud spending.”
Goldman Sachs, Toshiya Hari
The meeting is “unlikely to move the needle on the stock, at least in the immediate term… investors remain focused on near-term execution/results as they try to gauge to what extent the recent correction in fundamentals was due to cyclical or structural issues.”