Graphics-chip maker Nvidia is preparing to abandon its long-shot bid to acquire chip designer Arm, according to a media report. Nvidia stock fell Tuesday amid a broad tech market sell-off.
Bloomberg reported Tuesday that Nvidia has informed partners that the transaction is unlikely to close because of regulatory challenges. Meanwhile, Arm owner SoftBank Group is likely to pursue an initial public offering for Arm as an alternative to an acquisition.
On the stock market today, Nvidia stock sank 4.5% to close at 223.24.
Nvidia announced its $40 billion cash-and-stock bid for U.K.-based Arm in September 2020. But the deal has drawn harsh criticism from antitrust regulators and other chipmakers.
U.S., China Regulatory Challenges
The U.S. Federal Trade Commission sued to stop the acquisition in December, arguing that Nvidia would become too powerful if it gained control over Arm's chip designs. Nvidia sought the Arm deal to move deeper into data centers with central processing units for servers. Regulators in China also are poised to block the deal.
Companies opposing the deal include Amazon, Intel, Microsoft, Qualcomm and Alphabet's Google. Arm's chip designs are used in smartphones, smart home devices and other products.
Arm and Nvidia have publicly maintained their commitment to completing the transaction.
However, Nvidia will be able to accomplish most of its goals simply by licensing Arm technology, Wedbush Securities analyst Matt Bryson said in a note to clients. He rates Nvidia stock as neutral with a price target of 300.
"We have said since the deal was announced that we see regulatory approval as unlikely," he said. The FTC lawsuit and U.K. concerns have increased his conviction that the deal won't happen, Bryson said.
Nvidia Stock On Leaderboard
Nvidia stock ranks No. 7 out of 31 stocks in IBD's fabless semiconductor industry group, according to IBD Stock Checkup. It has an IBD Composite Rating of 97 out of 99.
Nvidia stock also is on IBD's Leaderboard watchlist.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
