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Valued at a market capitalization of nearly $3.3 billion, Nvidia (NVDA) is among the world’s largest companies. The chip stock has surged over 800% since late 2022, as it is at the epicenter of the artificial intelligence (AI) megatrend. The company has strengthened its AI software portfolio by acquiring Run.ai, a graphics processing unit (GPU) cloud orchestration platform provider. Nvidia will pay $700 million for the acquisition, representing a strategic move to enhance its enterprise AI capabilities. Let’s see if Nvidia stock is a buy, sell, or hold after its recent acquisition announcement.
What Does the Acquisition Mean for Nvidia?
Founded in 2018, Run.ai specializes in software that helps organizations efficiently manage and orchestrate GPU resources for AI applications in cloud environments. Run.ai co-founders Omri Geller and Ronen Dar emphasized a commitment to maintaining an open-platform philosophy and supporting various AI infrastructure deployments, including on-premises, cloud-native solutions, and Nvidia DGX Cloud.
According to a Venture Beat report, the acquisition builds upon a collaborative relationship between the two companies dating back to 2020. Run.ai’s technology proves particularly valuable as organizations increasingly seek to optimize their AI infrastructure investments.
Run.ai’s GPU orchestration platform addresses one of AI deployment’s most significant pain points: efficiently managing and scheduling GPU resources in the cloud. As companies race to implement AI, optimizing expensive computing resources is crucial. By acquiring Run.ai and open-sourcing its platform, Nvidia is making it easier for customers to maximize GPU investments, potentially driving further adoption of Nvidia hardware.
Is Nvidia Still a Good Stock to Own?
While the Run.ai acquisition diversifies Nvidia’s revenue stream, it is unlikely to move the needle in terms of top-line growth, at least in the near term. However, Nvidia continues to cement its position as the undisputed leader in AI and gaming chips.
Nvidia ended fiscal 2024 with data center sales of $47.5 billion. In the last 12 months, data center sales have risen to $98 billion.
With more than 5.1 million developers, Nvidia has a robust developer ecosystem. Moreover, its chips power 75% of the world’s top 500 supercomputers. A wide competitive moat in a rapidly expanding market allows the chip giant to benefit from pricing power, translating to higher profit margins. In the past year, Nvidia‘s gross margins have stood at 75.9%, up from 60% in fiscal 2018. Comparatively, operating profits have expanded to 62.7% from 33% in this period.
Nvidia estimates that transitioning from traditional CPU-based data centers to GPU-accelerated AI computing represents a $1 trillion opportunity. It recently revealed plans to expand capabilities further through “AI factories,” which are specialized data centers optimized for AI training and inference that could push the total addressable market beyond $2 trillion.
While Nvidia’s stock price has soared, making it the world’s most valuable chipmaker, the company continues to make smart strategic moves to defend and expand its moat in AI computing. The Run.ai acquisition strengthens Nvidia’s position in enterprise AI deployment while opening new opportunities in the rapidly growing AI infrastructure market.
Is NVDA Stock Overvalued?
Analysts tracking NVDA stock expect adjusted earnings to expand from $1.29 per share in fiscal 2024 to nearly $6 per share in 2027. Comparatively, free cash flow is forecast to touch $125 billion in 2027, up from $27 billion in 2024. So, if NVDA stock is priced at 40x trailing earnings, it will trade at $240 in early 2027, indicating upside potential of almost 80% from current levels.
Out of the 43 analysts covering NVDA stock, 36 recommend “Strong Buy,” three recommend “Moderate Buy” and four recommend “Hold.” The average target price for NVDA stock is $175.55, 30% above current prices.
