Key Points
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Corning will boost production of its optical data center components by building three new U.S. manufacturing facilities.
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Nvidia will invest $500 immediately, with the option to increase its stake by $2.7 billion.
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Both stocks are attractively priced.
- 10 stocks we like better than Corning ›
Shares of Corning (NYSE: GLW) surged out of the gate on Wednesday, gaining as much as 20.8%. As of 12:37 p.m. ET, the stock was still up 12.8%.
The catalyst that sent the optical fiber specialist higher was a significant vote of confidence from another key player in artificial intelligence (AI) — Nvidia (NASDAQ: NVDA).
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
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Soaring demand for AI
In a joint press release on Wednesday, Corning and Nvidia announced a multi-year commercial and technology partnership to “dramatically expand U.S.-based manufacturing of the advanced optical connectivity solutions needed to power next-generation AI infrastructure.”
Corning plans to build three new facilities in Texas and North Carolina to boost its manufacturing capability. Once online, Corning will increase its U.S. production of optical connectivity products by 10x and optical fiber by 50%.
As part of the deal, Nvidia has prefunded warrants to immediately purchase 3 million Corning shares for $500 million. Furthermore, the company has additional warrants that give it the option to purchase up to 15 million Corning shares at $180 each, for an additional investment of $2.7 billion.
Optical components have emerged as crucial components in next-generation AI data centers, as they increase data speeds, reduce energy consumption, and take up less space compared to copper cables. Operators have caught on, as demand for these key components has skyrocketed and supplies have dwindled.
By increasing production, Nvidia ensures it gets first dibs on the optical parts needed for its rack-scale servers, and Corning gets to fill this critical need, in a win-win for both companies.
Price-sensitive investors should watch for price weakness to pick up shares of Corning. The stock has surged 296% over the past year and is now selling for 86 times earnings. On the other hand, its price/earnings-to-growth (PEG) ratio — which factors in its stellar growth — returns a multiple of 0.29, when any number less than 1 signifies an underpriced stock. At 25 times forward earnings, Nvidia stock is also attractively priced.
Should you buy stock in Corning right now?
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Danny Vena, CPA has positions in Nvidia. The Motley Fool has positions in and recommends Corning and Nvidia. The Motley Fool has a disclosure policy.
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