Monday, September 19, 2016

"The Real Reason NVIDIA is Offering $2 Billion in Unsecured Debt" (NVDA)

This morning the stock surpassed the last all-time high from August 15, $63.50 by trading to $65.26.
$63.68 last, up 84 cents.
Following up on last week's "Nvidia SEC Filing Raises Specter Of An Acquistion: Nomura", some smart analysis from Motley Fool:

The GPU specialist is killing two birds with one stone.
NVIDIA Corporation (NASDAQ:NVDA) just announced a massive offering of $2 billion in unsecured notes. But considering the GPU specialist ended last quarter with nearly $4.9 billion in cash and equivalents, and only $1.5 billion in debt (in the form of 1% convertible senior notes due 2018), it's obvious NVIDA isn't exactly strapped for cash. 
The multi-billion dollar question 
Why is NVIDIA raising this much money? According to the company, the net proceeds of the notes -- which will consist of $1 billion of 2.2% notes due 2021, and $1 billion of 3.2% notes due 2026 -- will be used to prefund the repayment of the principal amount of those existing convertible notes, as well as for "general corporate purposes such as dividend payments or share repurchases." 
For perspective, when NVIDIA issued those potentially dilutive convertible notes in late 2013, it simultaneously entered into a hedge transaction to deliver shares to offset any dilution from the notes should they be converted, as well as a separate warrants transaction designed to increase the price at which it would need to begin issuing new shares. As I incidentally pointed out in an article I wrote shortly before NVIDIA announced pricing for its latest unsecured notes early last week, NVIDIA's warrants only recently began to negatively affect its diluted share count this past October, when the value of NVIDIA shares skyrocketed above the warrants' strike price (currently $27.04 per share, adjusted for dividends since their issuance). 
Here's what it means 
First, keep in mind this new debt won't remove those warrants or change the terms of NVIDIA's convertible notes. Rather, it seems NVIDIA is simply getting its ducks in a row in anticipation of repaying the convertible notes upon their December 1, 2018 maturation -- a wise move given the current low-interest rate environment. Meanwhile, comments from NVIDIA's press release indicate any remaining net proceeds from the offering after satisfying the prefunding obligation will almost certainly go right back to funding NVIDIA's ambitious capital returns initiatives, be it in the form of an increased dividend or further repurchases. 
If you're wondering why NVIDIA isn't simply using its massive cash hoard to serve this purpose, note around 75% of NVIDIA's cash is currently held overseas. So NVIDIA is avoiding a hefty tax bill it would otherwise incur by bringing that cash stateside to repay debt, pay dividends, or fund additional repurchases....MORE
From the intro to July's "Nvidia’s Eye-Tracking Tech Could Revolutionize Virtual Reality" (NVDA):
 Yeah, but what have you done for me lately? 
NVDA NVIDIA Corporation daily Stock Chart

Before we go any further, our NVIDIA boilerplate: we make very few calls on individual names on the blog but this one is special.

They are positioned to be the brains in autonomous vehicles, they will drive virtual reality should it ever catch on, the current businesses include gaming graphics, deep learning/artificial intelligence, and supercharging the world's fastest supercomputers including what will be the world's fastest at Oak Ridge next year.
Not just another pretty face.

Or food delivery app.
That's me, quoting myself (NVIDIA Sets New All Time High On Pretty Good Numbers, "Sweeping Artificial Intelligence Adoption" (NVDA) 
While we are long-time fans of this little superstar we've given up posting each time NVIDIA trades at a new all-time high: we'd have something on the blog almost every day and there would be no time to get any actual work done. the stock is down $1.05 (1.95%) at $53.17 and this dropped out of one of the feedreaders....
If interested there are a lot of links in that post.