On Thursday, the U.S. Federal Trade Commission (FTC) sued Nvidia (NASDAQ:NVDA) as a means to block its $40 billion acquisition of semiconductor company Arm. NVDA stock is down 5.8% today as investors express doubt in potentially the biggest acquisition in the industry’s history.
Nvidia and Arm have been on a collision course for more than a year. After announcing plans to purchase Arm from Japanese conglomerate SoftBank (OTCMKTS:SFTBY) in September 2020, Nvidia has faced scrutiny from a variety of investors, industry professionals and several countries. The FTC’s latest action reinforces popular sentiment that the deal is too debilitating to the chip market as a whole.
To give some context, Arm is the patent holder for many of the most popular semiconductors in the world. However, it doesn’t manufacture them itself, instead issuing licenses to produce semiconductors using its patents. Practically every major chip maker is an Arm customer, including Microsoft (NASDAQ:MSFT), Qualcomm (NASDAQ:QCOM) and Intel (NASDAQ:INTC).
Nvidia owning Arm could spell doom for, well, everyone else. Any chip maker that acquires Arm would immediately gain a competitive advantage and likely further tighten supply lines. Should Nvidia begin withdrawing licenses to other chip makers, monopoly concerns would be more than warranted. Even worse, the acquisition could provide Nvidia info on many competitors’ production strategies. This could limit Arm from innovating in areas that don’t immediately benefit its new owner.
Commentators are making their way out of the woodwork to give their take on the uncertain deal. Let’s see what some experts expect for the deal going forward.
Dead or Alive? NVDA Stock in Flux as Investors Express Doubt.
Many investors see the FTC’s intervention as both an inevitability and an immovable roadblock to Nvidia’s power play. With that said, even when the deal was announced, regulatory concerns were apparent. Essentially, this means the improbability of the acquisition may have little effect on price targets.
CFRA analyst Angelo Zino feels similarly.
“We think the news essentially puts a nail in the coffin of a potential deal (we now assign less than a 10% probability) but saw little chance of success from the start given regulatory hurdles. From an investment perspective, this news has no impact on our recommendation or target price and we think most investors are well aware of the challenges of a deal being done.”
Zino still rates NVDA stock a “buy.”
Not everyone is as pessimistic on the acquisition. In fact, some still hold out hope that Nvidia can close the record-breaking deal.
“We view a potential path forward if Nvidia can present remedies that, among other options, might include creating a ‘Chinese Wall’ between the research and development engine and Arm business contracts in order to ease the regulatory antitrust concerns.” Citibank analysts Atif Malik and Amanda Scarnati said
This proposed accommodation would at least assuage some foul-play concerns the current deal presents, and could be the only way forward.
“Even if Nvidia does not complete its ARM Holdings acquisition, demand for NVIDIA AI continues to accelerate. Nvidia is all about AI and the Omniverse/metaverse,” Tigress Financial Partners’ Ivan Feinseth said.
This is a commonly cited reason for Nvidia’s steady price target. Nvidia is in some ways leading the charge to the oft-mentioned metaverse, an industry estimated to eventually be worth trillions of dollars. The metaverse wasn’t even a topic of conversation when Nvidia announced the acquisition. It seems Nvidia has plenty of areas to branch into even without Arm by its side.
On the date of publication, Shrey Dua 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.