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.