Wall Street has been looking at Nvidia (NVDA) of late, and investors seem to like what they see. Over the past 12 months, Nvidia stock is up an impressive 112% and remains close to its 52-week high.
On Monday, the chip giant announced the acquisition of UK-based chip designer ARM. Nvidia will take ARM off Japanese conglomerate SoftBank’s books in a deal worth up to $40 billion, which should reach completion over the next 18 months.
However, ARM’s tech powers many of the world’s leading companies’ mobile devices, numbering Apple, Samsung, and Microsoft among its clients. The specter of Nvidia muscling in on competitors’ playground is sure to raise some pushback from the other tech giants as well as intense regulatory scrutiny, especially in China.
That said, Merrill Lynch analyst Vivek Arya believes Nvidia’s small footprint in the “integrated system-on-chips (SoC) market that relies on ARM’s technology,” will mean “customer overlap/concerns could be minimal and well managed.”
Arya points out the path taken by Nvidia to gain approval from Chinese regulators for the recent Mellanox deal could point the way for the approval of the ARM acquisition.
ARM’s massive customer base resulted in the sale of 22 billion chips last year compared to Nvidia raking in chip sales of just 100 million. Nvidia, however, is not only a chip seller, but brings to market whole systems such as the DGX A100, which sells for $200,000. Arya estimates the combined company could cater to a $250 billion TAM (total addressable market) by 2023.
Additionally, the 5-star analyst believes the deal signals more bad news for semiconductor heavyweight and rival Intel.
“NVDA appears determined to bring ARM into the high-performance ecosystem, and that is negative for the ruling x86 and INTC,” Arya said. With Intel’s recent missteps, the analyst believes “data center is ripe for transformation and NVDA is uniquely positioned to execute on, accelerate and monetize the longer term benefits of the deal in high-performance cloud computing, AI, 5G, and IoT markets.”
Arya keeps to his Buy rating on NVDA shares along with and $650 price price target. Investors could be pocketing a 30% gain, should Arya’s thesis play out over the coming months. (To watch Arya’s track record, click here)
All in all, Nvidia has most of Wall Street on its side. NVDA’s Strong Buy consensus rating is based on 24 Buys, 4 Holds and 1 Sell. The $557.17 average price target implies shares will add a 12% premium in the year ahead. (See Nvidia stock analysis on TipRanks)
To find good ideas for tech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
