Why Nvidia Stock Just Jumped - Motley Fool

What happened

Nvidia (NASDAQ:NVDA) stock popped 2% as of 12:15 p.m. EDT, after the maker of semiconductors for video games and other uses announced its next-generation cloud gaming platform, GeForce RTX 3080-class gaming on GeForce NOW.

"But wait!" you say. Didn't Nvidia actually announce the latest development on GeForce NOW last month? For that matter, didn't it announce the opening of the cloud gaming platform early last year?

An esports team cheering at their consoles.

Image source: Getty Images.

So what

Well, yes. As a matter of fact, Nvidia did do both those things. But in an effort to keep the momentum going (and charge higher prices on its customers) the company now has a new latest development to announce.

For the low, low price of $200 a year (twice the $100 a year it charges for "priority" GeForce NOW membership, not to mention more than the free access for gaming sessions of under one hour), GeForce NOW players can play on servers powered by Nvidia's top-of-the-line RTX 3080 chip. This price of admission, says Nvidia, will buy access to "the most powerful gaming supercomputer ever built," the Nvidia GeForce NOW SuperPOD, with performance "nearly 3x that of an Xbox Series X" -- in a dig at Microsoft's consoles and its competing xCloud service.

Additionally, GeForce RTX 3080 membership will permit players to play over 1,100 games for 33% longer than Priority members (eight hours instead of six), says Nvidia, at higher resolution (up to 1440p), faster refresh rates (120 frames per second), and on nearly any device -- 4K TVs included.

Now what

Now, does all of the above justify investors adding about $11 billion to Nvidia stock's market capitalization today? Maybe, but I'm not convinced.

Consider: At 25 times sales currently, Nvidia would need to rake in an extra $440 million a year or so in revenue to justify an $11 billion increase in market capitalization from today's announcement. Can it do that?

Well, according to the company, GeForce NOW already has 12 million players on the platform. Presumably, not all of those subscribers are paying subscribers. In order to grow its revenue stream enough to justify today's $11 billion increase in market capitalization, Nvidia would need to either:

Get about 4.4 million of its 12 million subscribers, who are already paying Priority prices, to upgrade to GeForce NOW RTX 3080 and pay an extra $100 a year in order.
Convince 2.2 million free players to jump directly into $200-a-year GeForce NOW RTX 3080 membership.

Personally, I suspect that's a bit of an aggressive target, and that's why I think investors are overreacting to today's news.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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