NVIDIA’s Deal with Arm Paves the Path to a Trillion-Dollar Market Value

NVIDIA’s Deal with Arm Paves the Path to a Trillion-Dollar Market Value
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NVIDIA’s $40 billion acquisition of Arm Holdings will be the biggest deal ever in semiconductors.

The announcement was met with investor excitement, driving NVIDIA’s NVDA, +4.25% share price up as much as 8% and adding more than $25 billion to its market value — about two-thirds of the equity needed to make the acquisition.

But why is this purchase such a big deal and what does it mean for NVIDIA? That is the question investors should be asking.

An acquisition of this size will have hurdles but, make no mistake, NVIDIA with Arm is a powerful combination that has the promise to take NVIDIA to new heights, assuming it can get past regulators and keep current Arm licensees on board.

Let’s look at the pros and cons.

The positives of the deal outweigh the negatives by a wide margin, especially for the two companies involved. SoftBank, in the wake of recent challenges, has been looking to offload Arm, and there aren’t a lot of natural landing places for the company, especially landing places that have as natural of a fit as NVIDIA.

Chip Design

For those less familiar with Arm, the acquisition takes NVIDIA from top-tier status as a GPU maker for data center, automotive and gaming, and it instantly cements the company as a top-tier chip designer with scale that few, if any other company, can match. While companies like Intel INTC, +1.58%, Qualcomm QCOM, +2.05% and AMD AMD, +2.94% all do certain things that will be unique to the NVIDIA plus Arm combination, these companies represent the level of scale that we are talking about.

Arm and its intellectual property (IP) are already included in billions of chips sold each year. This includes a large volume of smartphone devices that use Arm-based microcontrollers, but also a huge portion of the overall revolution of smartphone devices that have been built leveraging Arm architectures.

Today, NVIDIA has effectively zero smartphone business, and with this acquisition NVIDIA instantly becomes one of the largest players in what is arguably society’s most valued piece of technology. NVIDIA with Arm will benefit significantly from the continued growth in smartphones, which is all but certain over the next decade.

Artificial Intelligence

The other massive opportunity for NVIDIA is going to be using Arm’s licensing model to offer its artificial intelligence (AI) technology at scale. In CEO Jensen Huang’s remarks to analysts immediately following the announcement, he was overt in mentioning the substantial business opportunity around AI and using Arm to take NVIDIA’s Ampere architecture to edge, internet of things (IoT), consoles, smartphones and automotive.

The challenges here have the most to do with gaining the approval of regulators and the trust of Arm’s current customer base. With little overlap in current offerings, I don’t see how regulators become overly problematic. However, these things are never a slam dunk. Remember that NVIDIA was able to navigate and overcome these challenges with its recent acquisition of Mellanox. I envision that China will be the biggest potential holdup, given the planned concessions of retaining Arm’s corporate HQ in Cambridge, England, along with making further investments in the U.K.

Arm’s Neutrality

The licensees will certainly see conflicts with this acquisition. Up to now, Arm has been a haven for chipmakers to license and leverage their way to new, innovative products that power billions of devices, most notably smartphones. Having Arm run with a high level of autonomy will smooth some of the edges, but large licensees including Samsung, Huawei and Qualcomm will have questions about Arm’s neutrality after NVIDIA completes this acquisition.

In the end, I think NVIDIA will do what it has to in order to protect its $40 billion investment in Arm — both in terms of customers and regulators. I believe this deal will happen in the 18-month time frame provided.

The acquisition of Arm by NVIDIA isn’t only the biggest deal ever in semiconductors, but a springboard to take NVIDIA’s market value north of half a trillion dollars with a sustained runway for growth. With NVIDIA’s already strong momentum, coupled with a greater set of tools in the form of architecture and licensing to expand its footprint, this deal is every bit as significant as the early-market reaction indicates.

Could a trillion be in NVIDIA’s sights? Ambitious, perhaps, but certainly not out of the question for NVIDIA with Arm in tow.

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.

The original version of this article was first published on MarketWatch.

Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.


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