IT SOUNDED LIKE

the perfect double date:

Advanced Micro Devices

ATI Technologies

Intel

Nvidia

Rumors that Intel wants to get in bed with Nvidia keep surfacing no matter how baseless they may be, and if you ask me they seem pretty baseless (more on that later). What's more disconcerting is that since AMD announced its acquisition of ATI on July 24, those rumors have driven Nvidia's stock so high up 76% to a 52-week high of $34.43 on Monday that the skyrocketing share price is overshadowing the company's fundamental prospects.

First, let's put some of this scuttlebutt to rest because these rumors will undoubtedly flare up again. Intel doesn't need to buy Nvidia, so it probably won't. Scotia Capital analyst Devan Moodley points out that Intel has more than 2,000 employees in-house that are working on graphics technologies. "[Intel] is more likely to enter the discrete graphics space themselves than buy Nvidia," Moodley said in a report Wednesday. (Discrete graphics refers to video cards that plug into a PC for use with highly graphic applications like gaming.)

There's also the fact that Intel has been streamlining its businesses, not expanding them. Jon Hykawy, an analyst at Research Capital in Toronto, points out that Nvidia's $2 billion in revenue and 40% gross margins are right in line with the revenues and margins of businesses that Intel has been getting rid of. "We believe this horse of a rumor is dead; stop flogging it," Hykawy wrote on Oct. 6. For the record, neither Intel nor Nvidia would comment on the takeover speculation.

Another thing: Nvidia can afford to stay independent. When AMD decided to buy ATI, it basically opted to cut ATI's relationship with Intel, explains American Technology Research analyst Doug Freedman. A PC co-branded with Intel's Centrino almost certainly won't be carrying ATI graphics technology, he explains. That means a nice big pot for Nvidia, which can continue to do business with both chip giants.

Nvidia is also gaining market share with its graphic processing units, or GPUs, for notebook and desktop computers, and demand continues to look strong, says Caris & Co. analyst Nicholas Aberle. Computer makers will be ramping up production in preparation for the launch of Microsoft's Vista operating system early next year. Vista will not only eat up more memory, but it's a heck of a lot more graphics intensive, an obvious boon for Nvidia. "We perceive this as a multiyear catalyst, not only for the desktop refresh, but also for increased interest in graphics separately," says Aberle.

Add to that the burgeoning market for mobile handsets that offer video and gaming capabilities and the soon-to-be-released Sony PlayStation 3, which includes Nvidia's graphics chips, and Nvidia's growth prospects look even more impressive. In fact, it would almost seem like the company was invincible. But things aren't exactly that clear cut.

Nvidia is one of more than one hundred companies currently embroiled in the stock options backdating fiasco. The company volunteered to look into its past options-granting practices on its own. We have seen plenty of hairy things come out of these reviews. Important executives have left or have been pushed out of companies and thousands of billable hours from accountants and lawyers are piling up. Analysts like American Technology's Freedman think the risk to Nvidia's business is nominal. "From what I understand, the issues that Nvidia has sound very clerical in nature and not like attempts of high-level fraud," says the analyst.

Nevertheless, the review has caused a bit of a mess. Because of its options investigation, Nvidia delayed the filing of its fiscal 2007 second-quarter results. In an early August press release, Nvidia told Wall Street that it raked in $687.5 million in revenue during the three months ended July 30, (a 20% increase from the same period a year before), but it couldn't provide any further earnings guidance.

According to Thomson First Call, a consensus estimate of analysts projects that the company earned 29 cents a share, excluding options expense, for the period. Last year the company reported earnings of 44 cents a share. Michael Hara, Nvidia's vice president of both corporate and investor relations, says there's no official date set for the company to release its earnings. "We're making very good progress, and we're probably heading down the home stretch now," he says.

When Nvidia finally slides into home, Freedman believes investors will be pleased to see the company reaping the rewards of its growing markets. In fact, the analyst thinks the company will handily beat estimates. But he also believes buying the company's shares on that projection might be foolish. Freedman, who has a 12-month price target of $36 on Nvidia's shares, notes that at $33 recently, Nvidia's stock is clearly ahead of itself. "The stock is almost fully reflecting what I expect for the full year," he says. Freedman suggests that investors should wait until the stock dips below $30 a share before buying.

For short-sellers, the run-up has caused some near-term heartache. According to Nasdaq, as of Sept. 15, there were 14.6 million of Nvidia's shares held short, or about 4.4% of the company's outstanding shares. When the stock price rose above the $30.14 mark, a short squeeze began, says Tom Ronk, the CEO of Buyins.net, a web site that tracks short-selling activity. At a recent price of $32.16, short-sellers were currently out of $29 million collectively, says Ronk. But shorts may be vindicated if Nvidia's shares fall back to earth.

Nvidia may be single and attractive, with loads of prospects ahead of it, but right now it's one expensive date for investors. Could it make for a great catch at a lower valuation? Absolutely. But until it falls back, there are plenty of less pricey fish in the sea of technology stocks.