Nvidia (NASDAQ:NVDA) just made itself even more of a chip powerhouse, and Arm Holdings just got a new country to call home. NVDA stock is rallying Monday on news of its $40 billion acquisition.
Why does this matter? Nvidia stock has been a red-hot investment lately, especially thanks to the novel coronavirus. The company is a leader in the chip space — and it recently overtook Intel (NASDAQ:INTC) to become the most valuable chipmaker in the United States. Importantly, it specializes in chips for gaming.
You likely know that consumers are flocking to video games. Stay-at-home orders, layoffs and a desire to escape reality formed the perfect recipe for this trend. Plus, two new consoles are due out this year from Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE). Greater consumer interest and new consoles should stoke interest in Nvidia’s products. With this trend underway, Nvidia stock has more than doubled in 2020.
Keep this in mind. Now, consider its acquisition of Arm Holdings. Until Sunday, Arm Holdings fell under the SoftBank (OTCMKTS:SFTBY) umbrella. CEO Masayoshi Son is looking to raise money, and a $40 billion sale of the chip designer makes a lot of sense.
But what does Nvidia get out of it? Arm Holdings is a chip designer. As Morning Brew puts it, Arm Holdings creates the blueprints for chips found in devices like popular smartphones. Through this deal, Nvidia gets to tap into this market. Arm Holdings works with big-name clients like Apple (NASDAQ:AAPL) to supply chip designs. In fact, Apple recently announced it would be moving its Mac computers from Intel to an Arm design. Talk about a big win for rival Nvidia.
Arm Holdings Gives Nvidia Stock Major Upside
Beyond the access to important intellectual property, Nvidia gets access to major upside potential. Nvidia is known for its gaming chips, but it also is expanding into data centers and more innovative niches like self-driving cars. When SoftBank first purchased Arm Holdings in 2016, the Japanese company saw it as a play on the internet of things (IOT). Arm was supposed to help connect everyday devices like refrigerators and cars.
SoftBank failed to make that happen, but now it is Nvidia’s turn. As the chipmaker continues to accelerate, including through a new graphics card due out this week, Arm Holdings could give it the key to an innovative future. Plus, many investors right now see futuristic tech like self-driving cars as the perfect way to navigate the economy out of the coronavirus-induced recession.
Although Arm’s ties to China may pose risks, this acquisition looks like a big win for Nvidia stock. Shares are up almost 8% on Monday morning.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer for InvestorPlace.com