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Investors temper their enthusiasm for Nvidia’s earnings results amid pending Arm acquisition

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Semiconductor maker Nvidia delivered another outstanding earnings report, featuring record-breaking revenues in its two biggest segments, data centers and gaming.

Nvidia
NVDA,
+0.13%
,
in its second three-month period since adding the Mellanox acquisition to its results, posted 162% growth in its data-center business, which equated to about 77% year-over-year organic growth. (Mellanox, a maker of computer-networking products, contributed more than $600 million.) Gaming sales surged 37%, producing total company revenue growth of 57%.

You would think the stock would have soared. But the stock fell, albeit only 2%. What happened?

Rebound in stock price

Read:Nvidia’s earnings results and comments from CEO Jensen Huang

The growth for Nvidia has been nothing short of incredible. The stock price has more than tripled from its 52-week low of $181, and optimism around the company’s prospects are higher than ever after it completed the Mellanox deal, announced the Arm acquisition, and delivered a slew of new products that will expand revenues across all of its business segments.

Two forces led to the somewhat adverse reaction to the result. The first was the company’s softer-than-expected outlook on data-center growth heading into the fourth quarter. The $4.8 billion number estimated for the quarter reflects a somewhat flat estimate quarter over quarter but still represents a $1.7 billion growth year over year.

The stock’s reaction can also be tied to the company’s huge upturn this year and the rotation play that has become more evident as we teeter between opening the economy and locking down, creating a twisted game of tug of war. At a price-to-earnings (P/E) ratio of almost 98, the stock trades at more than 10 times Intel’s
INTC,
+0.57%

 8.8 P/E ratio and three times Qualcomm’s
QCOM,
-0.41%

 32.6. In the big chipmaker space, only AMD
AMD,
+3.15%
,
at 114.6, has a higher P/E than Nvidia.

Arm deal

See:Innovation is crucial for chip companies. Here’s who’s spending the most on research

The other item driving the stock reaction is the Arm deal, whose Sept. 13 announcement prompted a rally that almost covered the entire $40 billion deal. This showed strong investor confidence, which led to the deal being at least partially baked in.

However, the path to a deal will all but certainly be met with some resistance from competitive chipmakers that view the deal as anti-competitive. This could mean a year or more ahead of discussions with regulators and potential legal action from competitors that may see this drag out before reaching a resolution.

My expectation is that Nvidia will get the deal done, but there may be shaky moments in the process — some investors may be looking to see how this turns out before re-entering the stock or adding to their position.

Quarterly earnings were very good for Nvidia, and I believe the future is bright for the company. However, the reaction wasn’t entirely surprising, but I see this as a speed bump rather than a wall for the company to climb — so long as the Arm deal gets done, which will be something for the market to keep its eye on.

Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advising, and/or consulting to Nvidia, Intel, Arm, Qualcomm, and dozens of companies in the tech and digital industries. Neither he nor his firm holds any equity positions with any companies cited. Follow him on Twitter @danielnewmanUV.





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My husband doesn’t get along with my son. I brought most of the wealth into our marriage. How do I split my estate?

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Dear Quentin,

How do couples typically handle their estates in a second marriage? My husband and I have been married for seven years, and it is the second marriage for both of us. I have one adult child from my previous marriage; he has no children.

I brought the majority of our wealth to our marriage, including almost $1 million in my 401(k) and a nice home that is almost paid off; otherwise, we have no debt. My husband and I bought a second home together. We work hard to fund our new 401(k)s, and own a successful business together.

I am turning 65 this year, so estate planning is long overdue. My husband is five years younger than me, and we are both in very good health. We have two issues facing us: I see our retirement as living very comfortably on the monthly income generated by our 401(k)s, pension, Social Security, etc., and leaving whatever may be left to my son.


‘The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him.’

I am not interested in scrimping, but I want to be able to have enough money to last us until age 90 (or beyond) by not touching the principal. My husband is more interested in dipping deep into our savings, and living it up in retirement while we are young enough to enjoy it.

The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him, to the point that neither one wants anything to do with the other. As far as he is concerned, my son doesn’t meet his expectations, and so deserves nothing from me and certainly nothing from him.

I want my estate planning to be fair to both my new husband and my son. How do people typically handle this type of quandary? I think that I need to create some type of trust to pass on my share of our estate to my son. My pre-marriage assets involved my son as I pursued my graduate degree through night school and worked long hours throughout his childhood.

Second Wife

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Second Wife,

Don’t allow your husband’s feelings toward your son to influence your estate planning.

Your relationships with your husband and your son and your own plans for retirement are all fair game when making decisions about your estate, but your husband and son’s fractured relationship is their business, not yours. You worked hard for this money, and your son is your legal heir. Any effort by your husband to spend all of your savings and fritter away any inheritance that you intended to leave to your son should be resisted at all costs.

You have worked too hard your entire life to compromise your plans for a comfortable retirement where you have money set aside for long-term medical care insurance, unforeseen emergencies and/or your son. If you jointly own your home, you can leave your half to your son in your will, and specify it can only be sold after your husband passes away.

If you own the home, you can give your husband a life estate. Your son would pay capital-gains tax on the value of your home when he sells it, and not when you bought it. You could also make your son the beneficiary on your life-insurance policy, and/or gift him a certain amount of money per year to see how he manages and spends that money.

Figure out what is fair to yourself first before moving on to what is fair to your husband and your son. It’s OK to put your needs first. I caution against your dipping into savings at a rate that is beyond your own risk tolerance.

Ultimately, you are entitled to leave all other separate property to your son when you die — and, along with a financial adviser, set up a trust with that in mind for you, your husband and your son. Not necessarily in that order.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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These money and investing tips can help you make a place for crypto in your portfolio

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can give you a better understanding of bitcoin and other cyrptocurrency, and help you figure out if digital currency has a place in your portfolio alongside stocks, bonds and other traditional assets.

Sign up here  to get MarketWatch’s best mutual funds and ETF stories emailed to you weekly!



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I’m 30. My wife is 34. We saved $350K and I have $325K saved for retirement. Should we pay cash for a home — or take out a mortgage and invest it?

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Dear Quentin,

After finishing graduate school, my wife and I decided to pay off all our debt before buying a home, or anything for that matter.

We have been cheaply renting for the last three years, and living as if I were still a very poor graduate student. During this time, we paid off all of our debts, and even went as far as to save around $350,000 in cash.

My wife is 30, I am 34, and we are ready to take the next step. We now have two children under two who have over $20,000 and growing in each of their 529s. We are both covered by ample term life insurance, and I have an own occupation disability policy. I make about $250,000 per year.

I am very fortunate in that my employer contributes about $40,000 into my 401(k) while I contribute up to the remaining Internal Revenue Service maximum of approximately $57,000 per year. Our family HSA contribution is maxed out and grows every year.

My spouse stays home with the children now. We have a combined retirement portfolio of around $325,000. At this point, should we put a cash offer on a home, or take out a loan and invest the difference? Not having a mortgage in our 30s seems awfully nice.

Conversely, investing could bring greater long-term returns.

Sincerely,

At A Crossroads

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Crossroads,

Congratulations, paying off that debt and saving so aggressively is quite an achievement, and it’s something that few people your age get to do.

The clue is often in the question. You are already edging closer to the house. As a rule, it’s never recommended to put all of your money in one place. So if I was to suggest anything — and it’s only a suggestion, NOT a recommendation — you could also split the difference and pay 25% to 50% down on a new home, and keep the remainder for investing, saving and a rainy day. Everything in moderation, even spending your hard-earned savings.

Of course, you get to live in a home of your choice in the neighborhood of your choice, and you get to enjoy that every day, as do your children. Having kids may also influence how much you are willing to spend on a home and where you are prepared to live based on the schools and the amenities in that district. It’s not just an investment, it’s a qualify-of-life choice, perhaps one of the most important choice outside of choosing a life partner.

MarketWatch Retirement columnist and CPA Riley Adams recently dealt with your very question, breaking down the pros/cons of both. The upside of stocks: “Stocks are liquid. Proven track record of success. Earn dividends. Easy to diversify your portfolio.” The downsides of stocks: “An emotional roller coaster. Short-term volatility. Capital-gains taxes.” That depends on your and your wife’s risk tolerance, and how much time you are willing and able to devote to investing.

The upside of real estate, per Adams’ advice: “A hedge against market volatility. Tax advantages. Cash flow.” And, like I said, you enjoy it every day. The downsides: “Real estate requires time and money. Your money is tied up. Tons of fees. Not easy to diversify.” And, if you are paying a mortgage, you also have to pay interest on top of the principal, which is tax deductible. Ditto property taxes. But paying that interest allows you to free up that extra cash.

Indeed, a recent study from the Federal Reserve Bank of New York looked at consumer preferences toward being a homeowner and how their attitudes have changed over the course of the COVID-19 pandemic. Survey participants were asked to rate which was the better investment — a home or financial assets such as a stocks — and what factors contributed to their choice. Some 90% of those polled said they preferred owning their primary residence to investing in the market.

Sit down with your wife, and a financial adviser and look at your options. The adviser, like a good therapist, should ask you questions — and you should hold all the answers.

The Moneyist:My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.



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