The termination of Nvidia's planned acquisition of chip designer Arm removes an uncertainty weighing on Nvidia stock. It also clears the way for SoftBank-owned Arm to do an initial public offering.
The two companies disclosed late Monday that they had given up on the deal because of "significant regulatory challenges." The Nvidia-Arm deal faced opposition from antitrust authorities in the U.S., Europe and China as well as from other chipmakers. News leaked late last month that Nvidia was preparing to abandon the transaction.
The Nvidia-Arm transaction was announced in September 2020. At the time, the cash-and-stock deal was worth $40 billion. The value had ballooned to about $80 billion late last year as Nvidia stock appreciated, Reuters reported.
"Arm has a bright future, and we'll continue to support them as a proud licensee for decades to come," Nvidia Chief Executive Jensen Huang said in a news release. "Arm is at the center of the important dynamics in computing. Though we won't be one company, we will partner closely with Arm."
Nvidia Stock Rises On News
Arm is positioned to expand beyond smartphones and PCs into supercomputing, cloud data centers, artificial intelligence and robotics, Huang said.
On the stock market today, Nvidia stock rose 1.5% to close at 251.08.
Under the terms of the breakup, Arm will keep $1.25 billion that Nvidia had prepaid. Arm now plans to pursue an IPO in its next fiscal year, which ends March 31, 2023.
Wedbush Securities analyst Matt Bryson said Nvidia will be able to accomplish its goals in the data center without buying Arm.
"While an Arm acquisition would, in our view, have created numerous positive product synergies for Nvidia, we believe it should be able to develop new products and address new markets with Arm architectures via its licensing agreement," Bryson said in a note to clients. He rates Nvidia stock as neutral.
Nvidia stock ranks ninth out of 31 stocks in IBD's fabless semiconductor industry group, according to IBD Stock Checkup. It has an IBD Composite Rating of 95 out of 99. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
