Nvidia and Arm Merger Deal Blocked By FTC on Competition Grounds

Nvidia Corp.’s (NVDA) previously announced $40 billion acquisition of chip design provider Arm Ltd. faces another obstacle, as the U.S. Federal Trade Commission has sued to block the deal on the grounds of maintaining healthy competition.

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The Commission voted 4-0 to file a complaint against Nvidia, Arm Ltd., and Arm’s owner Softbank Group. The administrative trial is scheduled to begin on August 9, 2022.

Key Hurdles in the Deal

The regulator is of the opinion that the deal will give Nvidia access to the computing technology and designs that its peers use to develop their own competing chips. This might lead to them curbing competition by deteriorating product quality, reducing innovation, raising prices, and lowering choices.

As per FTC’s complaints list, the deal could harm consumers who benefit from Arm-based products. Notably, FTC pointed out three markets where competition will be most affected – high-level advanced driver assistance systems, Data Processing Unit (DPU) SmartNICs and Arm-based CPUs for cloud computing service providers. (See Nvidia stock charts on TipRanks)

Also, the acquisition would allow Nvidia access competitively sensitive information of Arm’s licensees, some of which are its rivals. Thus, FTC mulls that this will result in a lower incentive for Arm to pursue innovations that conflict with Nvidia’s business interests.

The Director of FTC Bureau of Competition, Holly Vedova, said, “Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.”

Wall Street’s Take

Following the news, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on the stock and raised the price target to $400 from $230. The new price target implies 24.5% upside potential from current level.

Feinseth noted, “NVDA’s growing dominance in Data Center processing, gaming, artificial intelligence, machine learning, and autonomous vehicle technology will, along with new areas in science and medicine, continue to drive increasing demand for NVDA’s advanced high-speed GPUs and newly introduced DPUs empowering advanced AI capabilities in Data Centers.”

“NVDA’s strong brand equity innovative capabilities and market-leading position, especially in AI, will drive new product development and increasing demand for its GPUs, which will continue to drive higher Returns on Capital, increasing Economic Profit, and greater shareholder value creation,” the analyst added.

Consensus among analysts is a Strong Buy, based on 24 Buys and 2 Holds. The average Nvidia price target of $359.75 implies 12% upside potential to current levels.

Positive Sentiments

TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Nvidia, with 4.5% of investors on TipRanks increasing their exposure to NVDA stock over the past 30 days.