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NVIDIA's (NVDA) Proposed Buyout of Arm Faces Investigation

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NVIDIA Corporation’s (NVDA - Free Report) proposed acquisition deal of Arm Holdings has recently come under investigation by the United Kingdom’s Competition and Markets Authority (CMA).

On Sep 13, 2020, NVIDIA inked an agreement to acquire Arm from its existing owner, Softbank Group, in a cash-and-stock deal worth $40 billion. The company aims to integrate its artificial intelligence (AI) computing platform with Arm’s expertise in order to create a premier computing entity.

Investigation Details

However, the deal has caught the attention of the U.K.’s competition regulator, CMA, which will investigate the proposed takeover on competition grounds. CMA along with other competition authorities will ensure that the deal does not result in more expensive or low-quality products for consumers.

CMA will consider whether Arm will withdraw, increase prices or provide lower-quality Intellectual Property (IP) licensing services to NVIDIA’s competitors. NVIDIA’s rivals include Arm’s customers such as Qualcomm (QCOM - Free Report) , Intel (INTC - Free Report) and Advanced Micro Devices (AMD - Free Report) , which raises major concerns.

Further, as reported by Bloomberg, the U.K. government intends to keep a check on the numbers of staff that will be maintained. Moreover, the takeover will face review from local regulators in Beijing, since Chinese technology companies like Huawei have raised serious concerns about the merger, in October 2020.

Strength in Data Center Business Bodes Well

NVIDIA’s shares have surged 109.9% over the past year compared with the Zacks Semiconductor – General industry’s growth of 33.6%.

The company largely benefits from the solid demand for data centers due to the ongoing cloud migration by enterprises. This has also boosted the adoption of the company’s graphic processing unit (GPU) across major datacenter operators.

Markedly, in the third quarter of fiscal 2021, revenues from Data Center (40% of revenues) surged 162% year over year and 8% sequentially to $1.9 billion. Strong momentum in the company’s Ampere architecture products was a key growth driver.

Moreover, NVIDIA A100 GPU facilitates cloud computing for the cloud arm of leading companies such as Amazon Web Services, Oracle Cloud Infrastructure, Google Cloud Platform and Microsoft Azure, which is a major positive.

This Zacks Rank #2 (Buy) company also teamed up with VMware to build an end-to-end enterprise platform for AI and a new architecture for data center, cloud and edge, which uses NVIDIA data processing units. The new platform is expected to benefit more than 300,000 VMware customers. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Additionally, the acquisition of Arm is anticipated to boost NVIDIA’s capabilities in chip designing and help it offer an end-to-end ecosystem of technology across the data center, IoT, autonomous vehicles and mobile segments, provided the takeover gets approval from the regulatory authorities.

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