After you receive this Alert, we will be initiating a position in Nvidia (NVDA) , buying 150 shares at roughly $169.34. Following the trade, NVDA will represent 0.93% of the portfolio.

We believe the time has come to initiate a former position that represents one of the best growth stories within artificial intelligence and machine learning. We are bringing NVDA out of the Bullpen and into the portfolio.

What has changed in the last roughly six months, which represents the gap in time from when we owned shares previously?

Well, the most glaring difference is price. The shares currently trade at around $170, which is roughly $95 below our October 2018 exit price of $265 (see our Alert here for more information) and more than $100 below $283 which was when we first became cautious and began to express our short-term concerns about the company's earnings outlook (see our Alert here for more information). While we always believed in Nvidia's long-term thesis and its favorable positioning toward several secular growth trends in tech, we expected a shortfall, we acted on our convictions, we booked significant profits, and missed a huge move to the downsize. But since we still believe in the long-term outlook of the company, we think now is an appropriate time to accumulate a new position.

How about the business? Many members are likely already familiar with our investment thesis on Nvidia, which revolves heavily around the company's gaming chip dominance, exposure to autonomous driving and the data center, a high-growth field driven by the need for Nvidia's chips in the process GPU-acceleration, which we remind members is becoming increasingly more of a necessity as Moore's law has effectively come to an end. However, while all of these factors and end markets remain key to our core thesis, we would be remiss to not delve deeper into the data center segment given the company's March 11 announcement that it will acquire Israeli networking company Mellanox Technologies (MLNX) for $6.9 billion in cash. The press release of the announcement can be found here.

We have long been and remain bullish on those names tied to the data center, such as Amazon (AMZN) and Microsoft (MSFT)  , to name a few. Supporting this view, we believe the cloud represents the future of computing and note that the data center is simply the physical location of the cloud.

In addition to the speed, flexibility and scalability offered by cloud computing, companies are rapidly moving to the cloud because it also allows for fixed costs to become variable ones and eliminates the need for companies to invest heavily in building out their own internal server farms, projects which also bring with them significant lead times. Given the amount of data already moving to the cloud and the view that data consumption is expected to increase rapidly in the years to come as we usher in the age of 5G, allowing for even more data to be transferred faster than ever before, it becomes apparent why being able to increase the speed of data center processes is crucial and how Nvidia's GPUs fit into the equation. However, on their own, these chips can only do so much. The real trick to faster computing in the days after Moore's law is not only in the ability to accelerate processes with GPUs but to tie multiple GPUs together to operate as a single unit.

Taking a step back for a moment, Nvidia has a technology known as "NVlink," which allows the company to harness the capabilities of several GPUs within a single server rack, tie them together and essentially allow them to work in combination as one super GPU. However, while NVlink allows for the GPUs in a single server to merge, the system does not support the tying together of multiple server subsystems, effectively limiting the number of GPUs that Nvidia can tie together.

This is where Mellanox neatly fits in.

What NVidia's NVlink does for a server subsystems within a data center, Mellanox's low latency "InfiniBand" does for the various subsystems within the data center, tying them all together and allowing them to operate as a single cohesive unit. In fact, the two companies are already found side-by-side in every major cloud provider's data center. While Nvidia uses NVlink to pair multiple GPUs, the company uses Mellanox's InifiBand to pair together and optimize the those GPU-accelerated subsystems. However, as analysts at Morgan Stanley note, given the product differentiation, the decision to merge is likely less about synergies and more about Nvidia being able to tie together Mellanox's networking solutions with Nvidia's GPU-based answer to the end of Moore's law. This will offer the customer an all-encompassing solution to building out an accelerated data center in which all the pieces (the GPUs within a single system and the various segmented systems within the data center) are combined to work as one, within a low latency network framework, and in the process, and enable Nvidia to sell of even more GPUs by leveraging this new position. This isn't a "slash and burn" transaction. This is an acquisition that increases Nvidia's exposure to the expanding data center market, while also decreasing its reliance on Gaming.

That said, implementation will be crucial, per the analysts at Morgan Stanley: "Ultimately, the synergy between networking and compute is a new concept for NVIDIA, and much will depend on implementation. But we do see a significant longer-term opportunity."

While it may seem a bit out there, the easiest way to conceptualize what Nvidia is looking to do with this acquisition is to consider the human brain -- we are talking about addressing the needs of deep learning and artificial intelligence after all. While the human brain is made up of various regions (or lobes) each one responsible for different functions, the real power of the brain is only realized when these various regions work together a single unit, this is exactly what Nvidia is hoping to do with the acquisition of Mellanox, offering customers a data center in which all the various pieces work together to become more powerful than they ever could have on their own.

So what about Gaming, Nvidia's largest division by sales? This business was our area of concern last October.

Let's review what exactly happened here. When the company reported its fiscal 2019 third-quarter earnings last November, management provided huge downside guidance and completely reset expectations in the Gaming segment because of excess channel inventory related to the crypto-bust. Previously, management had said that crypto was completely out of the stock, however, that was far from the case and desktop gaming product demand waned when the price of cryptocurrencies collapsed. During that conference call, management laid out the expectation that it will take one to two quarters time to normalize.

While their next-quarter sales forecast was far from accurate (evidenced by the sharp downside pre-announcement at the end of January, an outcome the market was very forgiving to in subsequent weeks), management maintained their stance on the February 2019 earnings call that channel inventories will normalize in Q1, or the next quarterly report. There will always be a degree of uncertainty here until Nvidia's results prove otherwise, but we must acknowledge how the passage of time de-risks our exposure to the excess channel inventory sell through. Furthermore, the Mellanox deal de-emphasizes the company's reliance on the Gaming market, which if anything, should be less pressured compared to the second half of 2018 due to recently relaxed regulations in China.

We are initiating the position with a $205 price target, reflecting roughly 32x consensus calendar-year 2019 earnings estimates. That being said, we believe there is more room for upside here, both on further multiple expansion and especially on earnings growth, driven by the increased demand for Nvidia's products. which are instrumental to several high-growth industries. We are also going to start small with this position as we acknowledge how the Mellanox acquisition has spring-boarded shares to around $170 from the $150s. We'll welcome weakness as an opportunity to get bigger in our position.