Only 4 publicly traded US companies have a value of over $1t – Apple, Microsoft, Amazon and Alphabet. Nvidia, America’s largest semiconductor company, is trying to be the next after reporting record earnings in May – leading to big upgrades from analysts.

Chipping away at the $1t mark

Nvidia’s computer chips are powering the biggest industries – gaming, artificial intelligence and cloud computing – some of the biggest beneficiaries of COVID. This led to a 40% rise in Nvidia’s stock in 2021:

• Gaming chip sales more than doubled in the second quarter as people flocked to video games.
• Datacenter chip sales grew 79% – a sign Nvidia’s advanced chip is paying off.

Nvidia had a massive 2021 first-quarter – sales grew by 84% while profits grew by 109% – leading to multiple analyst upgrades from Jefferies and Bank of America (BoA). According to Vivek Arya of BoA, rising adoption of cloud and growing use cases for its chips could triple Nvidia’s data center sales in the next few years.

Mending a broken ARM

The tipping point in the race may be a game-changing acquisition. Last year, Nvidia announced a $40b deal to buy ARM, a major designer of microprocessing chips that powers ~90% of smartphones.

However, ARM has a complex ownership structure, which means Nvidia needs approval from UK and Chinese regulators. This approval process is long, with just a 10% chance of success, according to Citi analyst Atif Mali.

Depending on which side you’re on:

• Good for investors: The deal could turn Nvidia into a powerhouse.
• Scary for competitors: Nvidia could gain a substantial amount of power in the industry.

Even customers of ARM, Microsoft and Google are objecting to the deal. For Nvidia, the ARM acquisition would give it a big push. But even without it, Nvidia’s growing just fine.

Investors: Let the chips fall where they may

At a $459b market cap, Nvidia isn’t nearly as close to $1t as Facebook with its $942b market cap. And with their current trajectory, Nvidia is likely to lose this race. However, for investors, there’s more than one way to win — by betting on multiple horses.