Know First has a very bullish 1-year signal for Nvidia (NVDA). However, I conclude NVDA is obese at 62.51x forward GAAP P/E. Nvidia’s stock is +220.88% since my last buy recommendation for it. NVDA is +4,153.73% since my first buy recommendation. After 23 Seeking Alpha buy recommendations for NVDA, I am endorsing it as a sell. I downgraded NVDA from Overweight to obscenely obese. I Know Nvidia will most likely report outstanding revenue and EPS numbers today. I still conclude NVDA is obese/overpriced.

Cash out your massive paper profits on NVDA. Use that profit to buy more affordable stocks like Intel (INTC), Taiwan Semiconductor (TSM), Qualcomm (QCOM), and Advanced Micro Devices (AMD). The irrational exuberance has made NVDA over-inflated.  NVDA is now mired in a stratospheric TTM P/E valuation of 90x and above.

NVDA might fall hard if China’s Communist Party rejects its $40 billion takeovers of ARM Holdings. ARM China is already embroiled in a war against its ARM Holdings UK sibling. Beijing-backed investors are among those who bought majority control of ARM China from SoftBank (SFTBY).  

The comparative chart below clearly illustrates NVDA is obese and too expensive. I can only give NVDA a Neutral rating if it loses weight down to 49x Forward P/E – same as AMD has.

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Overpricing Nvidia significantly higher than AMD is misplaced bias. AMD is successfully reducing the x86 processor market share of Intel. AMD can refocus and become more aggressive in disrupting Nvidia’s 81% market share in discrete GPUs.

AMD’s Ryzen and EPYC x86 processors are why Intel is handicapped by decreasing profitability/margins. NVDA’s lofty valuation ratios will gradually fall down after AMD Instinct MI100 starts forcing Nvidia to reduce the average selling prices of its expensive GPU accelerators. Nvidia used to tout a net income margin higher than 37% in 2018. AMD’s consumer and data center GPUs are why Nvidia’s net income margin is now just around 27%.

Like Intel, Nvidia is obviously reducing price tags for its GPUs. Price reduction slows down AMD’s advances.

AMD is making Intel and NVDA less profitable. AMD is doing this while increasing its net income margin. This achievement should inspire investors to be irrationally exuberant for AMD, not NVDA. Dr. Lisa Su deserves to win the Best CEO of the 21^st Century award.

NVDA Stock Forecast: Emerging Threat from Intel

Nvidia’s future prosperity is also endangered by Intel’s upcoming 3nm data center and consumer-grade GPUs. Taiwan Semiconductor is reportedly going to fabricate starting next year. Intel’s Raja Koduri-led expansion to GPUs is a threat to Nvidia. Intel’s new CEO Gelsinger even created a new division called Accelerated Computing Systems and Graphics Group (or AXG) under Raja Koduri. Intel is eager to replicate Nvidia’s GPU-centric Data Center segment success.

Success breeds envy. Nvidia’s enviable $2.0 billion/quarter data center business is partly why Ashraf Eassa quit Intel and joined Nvidia.

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Going forward, Intel can incentivize PC vendors like Lenovo (LNVGY), Dell (DELL), and HP Inc (HPQ) to bundle its 3nm Iris Xe discrete GPUs inside Windows 11-compliant laptops and desktop computers. The continuing short-supply in Intel Core i-Series processors could mean PC vendors might be amiable to any Intel requests. They just want enough supply of x86 processors.

Intel’s Iris Xe DG1 product is a decent budget-friendly 1080p PC gaming accelerator card. TSMC manufacturing Iris Xe 3nm GPUs can expand Intel’s total addressable market. Intel’s x86 processors made it a serious player in the $40 billion PC gaming hardware industry.

The foundry partnership with TSMC might also transform Intel into a serious challenger in the $13.7 billion data center accelerator business. Intel already bought FPGA and ASIC accelerator assets. Intel only needs GPU accelerators made by TSMC. Starting next year, Intel might benefit from the 36.7% CAGR of data center accelerators.

The irrational exuberance-fueled valuation for NVDA will start to erode when AMD and Intel start selling viable alternatives to Nvidia’s data center accelerators. 

China Cannot Let American Firms Dictate Its Future

China’s growing crackdown against monopolist Chinese firms like Alibaba (BABA) and Tencent (TCEHY) convinced me it is not amiable to American firm Nvidia buying ARM Holdings. UK-based ARM Holdings is a monopoly that designs and licenses out ARM-based processors. The U.S. government’s treatment of Huawei and other Chinese firms is not going to inspire President-for-life Xi Jinping to allow a U.S. company to own ARM Holdings. United Kingdom politicians are still capable of defying U.S. government edicts. UK company ARM Holdings does not give a damn about Pres. Biden’s list of blacklisted Chinese firms. 

Top Chinese home-grown semiconductor companies are ARM licensees. Pres. Xi Jinping cannot let an American firm to control a British company that is helping China’s $155 billion semiconductor domestic expansion effort. American firms can be dictated upon by the U.S. government to blacklist Chinese companies. The $138 billion 2020 revenue of Huawei says it can easily offer $42 billion and buy 100% of ARM Holdings.

SoftBank only paid $32 billion to buy ARM Holdings in 2016. Massive debt payments forced SoftBank last September to entice Nvidia to make $40 billion for ARM. Aside from the China Communist Party, there are also major companies that are against Nvidia’s ARM Holdings grab.

Qualcomm, Google (GOOGL), and Microsoft (MSFT) are objecting to this deal. Qualcomm has already sued Apple and won. Qualcomm can easily sue in China/America/EU/Japan/Philippines/India and defeat Nvidia’s takeover of ARM Holdings. Google and Microsoft are super-rich companies. They can hire the best anti-trust American and Chinese lawyers so Nvidia never gets to own ARM Holdings. Microsoft is building its own custom ARM-based server processors probably because Nvidia’s DGX products are so expensive.

Why Many Fear Nvidia’s Ambitious Bid For Arm Holdings

If successful, Nvidia will likely raise ARM’s current licensing/royalty fees. Nvidia taking over ARM Holdings might lead to it not renewing or even rejecting new ARM license applications. For example, U.S. Pres. Biden can order Nvidia to ban Chinese semiconductor companies from licensing ARM technologies/designs. Nvidia might also decide to only license next-gen ARM architecture designs that cannot outperform future Tegra and Tesla processors. MediaTek can quickly lose its no. 1 status in mobile application processors if Nvidia starts favoring its own Tegra brand.  

The 6.2% CAGR of the $13.46 billion market for smartphone application processors is a tempting untapped market for Nvidia’s Tegra. 

Prior takeover history has taught Communist rulers that Western companies are willing to spend big bucks to eliminate/displace competition. Take for example Adobe (ADBE). Adobe paid $3.4 billion to buy its fiercest rival Macromedia in 2005. Adobe swiftly killed all Macromedia software products. Adobe Creative Cloud became the monopoly on content creation software. Adidas (ADDDY) bought Reebok for $3.8 billion in 2006 and left it for dead. Adidas deftly sold the carcass of Reebok to Americans for $2.5 billion. 

The non-bias quantitative algorithm AI of Seeking Alpha has a Neutral outlook for NVDA. This is because of Nvidia’s intimidating Value Grade of F. F means investors have FAILED to control their irrational exuberance. Take your profits and head south on NVDA.

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NVDA Stock Forecast: Conclusion

Timely exit out of an extremely profitable investment is judicious. Yes, greed is good. Unfortunately, greed to the point of irrationality is hazardous. Take your profits out of NVDA now. Nvidia’s higher than 90x TTM P/E valuation makes it susceptible to short sellers. Short sellers can just pay someone to start a rumor that China is set to reject Nvidia’s $40 billion bid for ARM Holdings. More likely than not, NVDA’s price could drop significantly. 

Pres. Xi Jinping is unlikely to allow Nvidia to take ownership of ARM Holdings. China’s $155 billion 5-year development plan for its domestic semiconductor industry is at stake.

Qualcomm, Microsoft, and Google can also lobby/sue anywhere to stop Nvidia from getting its hands on ARM Holdings. Debt-laden SoftBank might just become desperate enough to find another buyer for ARM Holdings. Samsung (SSNLF) and Huawei can outbid Nvidia’s $40 billion offer.

Taiwan Semiconductor’s foundry partnership with Intel is a headwind for Nvidia. The new Raja Koduri-led AXG division can eventually release cheaper but competitive alternatives to Nvidia’s $199,000 DGX A100 HPC product. The future 3nm Intel GPUs made by TSMC could become decent gaming and deep learning accelerator cards. TSMC after all is the contract manufacturer of 7nm AMD Radeon and other Nvidia GeForce products.

Past Success With NVDA Stock Forecast

I Know First has been bullish on Nvidia’s shares in past forecasts. On our April 13, 2021 premium article, the I Know First algorithm issued a bullish NVDA stock forecast (should be noted that Nvidia split the stock 4:1 on July 20, 2021). The algorithm successfully forecasted the movement of Nvidia’s shares on the 3-month time horizon. NVDA’s shares rose by 33.14% in line with the I Know First algorithm’s forecast.