NVIDIA Corporation (NVDA - Free Report) on Sunday announced entering a definitive agreement to acquire Arm Holdings for $40 billion from its existing owner Softbank Group. The graphic chip maker revealed that the transaction has received approval from the boards of all three parties and will likely be complete in approximately 18 months.
The $40 billion cash-stock deal has some few intricacies. Per the agreement, NVIDIA will pay $12 billion in cash to Softbank, of which $2 billion is payable immediately for signing the deal. Another $21.5 billion will be paid in terms of NVIDIA common stocks, which is anticipated to provide Softbank an equity ownership of less than 10% in the graphic chip company.
Additionally, Softbank can also receive $5 billion in cash if Arm achieves a certain financial performance target. The remaining $1.5 billion will be paid to Arm employees as NVIDIA’s stock.
NVIDIA intends to use the existing cash available to finance the cash portion of the transaction. As of Jul 26, the company had cash and cash equivalents of $10.98 billion.
Per Bloomberg, “Arm sells semiconductor designs and also licenses the fundamentals of how chips communicate with software, known as an instruction set.” The company is well known for its ARM Processors or CPUs. Additionally, it offers development tools that deliver intelligence in applications, including servers, sensors, PCs, smartphones, enterprise infrastructure, and IoT.
Therefore, we believe the Arm acquisition would be a perfect fit for NVIDIA. The transaction will help the graphic chip maker enhance its capabilities in chip designing and foray into newer business segments.
NVIDIA intends to integrate its leading artificial intelligence (AI) computing platform with Arm’s expertise in a bid to create a premier computing entity, and expand across large and high-growth markets.
NVIDIA stated that the transaction would be immediately accretive to non-GAAP gross margin and non-GAAP earnings per share post the transaction’s closure.
Zacks Rank & Stocks to Consider
Currently, NVIDIA carries a Zacks Rank #4 (Sell).
A few better-ranked stocks in the broader technology sector are salesforce.com inc. (CRM - Free Report) , Synaptics Incorporated (SYNA - Free Report) , and Blackbaud, Inc. (BLKB - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Salesforce, Synaptics and Blackbaud is currently pegged at 18%, 10% and 7.6%, respectively.
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