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Nvidia's Pursuit of ARM Looks Increasingly Unlikely With U.S. FTC Lawsuit; FVE Down to $194

Abhinav Davuluri, CFA Sector Strategist

Analyst Note

| Abhinav Davuluri, CFA |

On Dec. 2, the U.S. Federal Trade Commission, or FTC, sued to block Nvidia's acquisition of ARM on the grounds of the combination being anticompetitive. Specifically, due to the importance of ARM technology in nearly every smartphone and increasingly other compute applications, Nvidia's ownership of ARM could lead to higher prices or curb innovation for future technologies. During the firm's most recent earnings call, management noted that in addition to the U.S. FTC, regulators in the U.K., EU, and China had expressed concerns about the transaction. We suspect major ARM customers such as Qualcomm, Apple, and others remain opposed to the deal, as it threatens ARM's status as a relatively independent and vital cog in the broader semiconductor ecosystem. As a result of the U.S. FTC challenge, we're lowering our fair value estimate from $200 per share to $194 per share on a probability-adjusted basis, which includes a 25% probability that Nvidia closes the ARM deal (versus 50% previously). Our fair value with ARM is $213 per share for wide-moat Nvidia, whereas our standalone fair value is $187 per share.

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Company Profile

Business Description

Nvidia is the top designer of discrete graphics processing units that enhance the experience on computing platforms. The firm's chips are used in a variety of end markets, including high-end PCs for gaming, data centers, and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm's graphics processing units.

2788 San Tomas Expressway
Santa Clara, CA, 95051
T +1 408 486-2000
Sector Technology
Industry Semiconductors
Most Recent Earnings Oct 31, 2021
Fiscal Year End Jan 30, 2022
Stock Type Cyclical
Employees 18,975