Nvidia’s Deal with Arm Might Not Happen Soon (Or Ever), But Don’t Worry

Reuters reported on Jun. 16 that Nvidia’s (NASDAQ:NVDA) plans to close its $40 billion acquisition of U.K. chip firm Arm by March 2022 are looking less likely by the day. Of course, I’m sure this has owners of NVDA stock a little more nervous than usual. And there’s even a possibility that it might never happen

Nvidia (NVDA) logo displayed on phone screen
Source: rafapress / Shutterstock.com

However, before you freak out and sell your shares of this free cash flow (FCF) generating powerhouse, sit down and take a deep breath. The anxious feeling will pass.

Here’s why you should stay on with NVDA stock.

NVDA Stock Has Staying Power

If you bought 1,000 shares in Nvidia’s January 1999 initial public offering (IPO) at $12 a share, those shares would be worth $8.95 million as of Jun. 17. That’s based on four stock splits between 2000 and 2007. If you’re interested, that’s a compound annual growth rate of well over 30%. 

So, clearly Nvidia and NVDA stock has weathered a lot of storms over the years. As such, it should get through this latest hiccup with flying colors. 

Right now, Nvidia’s problem is that the European Commission needs until September to gather information before it can accept a formal application. This means the odds of closing by the March 2022 deadline are falling by the day. 

That’s why the two parties agreed to the insertion of an extension clause should it be necessary. The extension is for six months, or September 2022. If they get to that point and still no deal, either party can call things off and walk away. However, Nvidia doesn’t seem to be phased by the possibility. The company said the following in a Jun. 16 statement:

“[M]any jurisdictions have a pre-notification period, where the parties have a detailed and ongoing dialogue with regulators. Our discussions with regulators have been thorough and constructive. We’ll continue to work throughout the summer, as we anticipated all along, and expect to close in early 2022.”

In my view, Nvidia wants to avoid rushing the commissioners, given its application is not a slam dunk. But I believe that CEO Jensen Huang is one of the best chief executives in the tech sector. He’s not going to let impatience ruin a smart deal. And if the regulators say no? That’s a whole different issue and not something Nvidia can ultimately control. 

There’s no reason to freak out. 

The Only Real Downside

Look, if the Arm deal doesn’t happen, I’m sure Huang will be disappointed along with NVDA stock investors. However, with or without the U.K. company, Nvidia is an excellent business that generates tremendous FCF. It will be just fine.

In the meantime, the only real downside I see is the distraction Arm will become if it carries on until September 2022. That’s because the company will have an army of people within Nvidia’s headquarters working on nothing but getting the deal pushed through to the end zone. 

This is why I’ve never been a fan of major-dollar acquisitions. They always seem to make lawyers and investment bankers rich, regardless of how the deals turn out. Instead, smaller, seemingly less consequential acquisitions often turn out to be the real value generators. 

In fact, small deals are much like the professional athlete who’s drafted in a higher round but turns out to be the team superstar. That said, if anyone can make this whole process run smoothly, it’s Huang.

The Bottom Line on NVDA Stock

On Jun. 10, Nvidia announced that it would acquire DeepMap, a startup that creates high-definition maps for autonomous vehicles (AVs). Ali Kani, Nvidia’s vice president and general manager of the company’s automotive division, said the following:

“The acquisition is an endorsement of DeepMap’s unique vision, technology and people […] DeepMap is expected to extend our mapping products, help us scale worldwide map operations and expand our full self-driving expertise.”

Primarily, Nvidia will use DeepMap’s technology to bolster its mapping capability on Nvidia Drive. The technology will enable an autonomous vehicle to know where it is and where it’s going. No terms were given about the price paid for the five-year-old startup. 

Why am I mentioning this acquisition? Because it reminds NVDA investors that most people who work at Nvidia haven’t dropped everything to get the Arm deal completed. 

If you own NVDA stock, that ought to be comforting. I continue to believe Nvidia is an excellent long-term buy. It could hit $1,000 much sooner than you think.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 


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