Nvidia Stock Rises After Synopsys Deal. Here’s the Good—and the Bad.

Nvidia is the dominant provider of artificial-intelligence chips. (Dreamstime)

Key Points

• Nvidia shares rose 1.7% to $179.92, partially offsetting a 14% loss over the past month.
• Nvidia invested $2 billion in Synopsys, a provider of electronic design automation software for semiconductors.
• Nvidia faces increasing competitive pressure, with $6 billion in private investments this year and $17 billion committed.

Nvidia stock rose Monday as a partnership with Synopsys appeared to be helping the chip maker shake off concerns about competitive pressure.

Nvidia shares were up 1.7% at $179.92, following a 14% loss over the past month. The stock has slid because of concerns over the potential impact of competition on Nvidia.

Earlier losses reversed after Nvidia said it had taken a $2 billion stake in Synopsys, the largest provider of electronic design automation software, which is used to design semiconductors and CEO Jensen Huang talked up the deal.

“This is going to expand the market of computing into the world of design and engineering for the very first time,” he said in an interview with CNBC on Monday.

Shares of Broadcom , the design partner for Google’s Tensor Processing Units, closed down 4.2%, a sign that the increasingly fierce debate about whether they might take market share from Nvidia’s artificial-intelligence processors had shifted over the weekend. Under the right circumstances, Google’s TPUs can provide a much better cost structure than Nvidia graphics-processing units.

Nvidia’s software and the general-purpose nature of its graphics-processing units have helped it maintain a dominant position in AI chips. But some commentators think the current threat is the biggest so far.

“We think Nvidia faces growing competitive pressure and has been leaning hard on a variety of sales mechanisms to adapt. These measures are not fully reflected in financials, but they are already material and look likely to grow significantly next year,” Seaport Research analyst Jay Goldberg wrote in a research note on Monday.

Goldberg pointed to the fact Nvidia has spent $6 billion this year in investments in private companies and has commitments for another $17 billion. An agreement with ChatGPT developer OpenAI, which hasn’t been made final, could add up to another $100 billion.

“Nvidia can reasonably argue that these investments will pay for themselves as those companies raise more outside money and use the proceeds to buy Nvidia systems,” Goldberg wrote. “Nonetheless, the scope of this effort is growing considerably, which we think speaks to the growing competitive market Nvidia faces.”

Goldberg is rare among analysts in having a Sell rating on Nvidia stock, with a target of $140 for the price. The average target price on the shares on Wall Street is $254.80.

Write to Adam Clark at adam.clark@barrons.com