Nvidias latest earnings report is the nail in the coffin for a $40 billion ARM deal: analyst
I think a portion of the commentary [on Wednesday] putting the final nail in the ARM coffin here, Rolland told Yahoo Finance Live.
Nvidia initially made the $40 billion deal public in September 2020 with the expectation that it would close within year and a half, either Q1 or 2022. Be that as it may, during the companys earnings call, it explained the massive regulatory obstacles it should survive, including enhanced regulatory oversight in the UK, where ARM is based. The US, EU and China ought to also approve the deal.
Regulators in the UK and the EU declined to approve the transaction in Phase 1 of their assessment processes, raised various worries, initiated a more inside and out Phase 2 assessment of the transactions impact on rivalry, and, in the UK, a phase 2 assessment of the impact on the UKs national security interests, the company said in a statement following its earnings report.
While regulators and some ARM licensees have communicated concerns or had a problem with the transaction, we continue to have faith in the benefits and advantages of the acquisition to ARM, its licensees and the industry.
Tech area players including Microsoft (MSFT), Qualcomm (QCOM) and Google (GOOG, GOOGL) have gone against the proposed deal.
ARM licenses its plans and software to outsiders, including Qualcomm, Apple, Google and Nvidia, who utilize those plans to foster their own custom chips. ARM is generally regarded as a neutral player in the tech industry because it works with such a different array of companies. Think of it as the Switzerland of the tech world.
The fear is that if Nvidia purchases ARM, that neutrality will fade. Notwithstanding, Nvidia has resisted that claim.
The advantage of ARM being part of Nvidia is that we can accelerate their R&D scale, Nvidia CEO Jensen Huang told Yahoo Finance Live. ARM, as you probably are aware, is very fruitful on cell phones. However, we could assist them with being significantly more fruitful in all other areas of computing.
When the deal is done, as Rolland says, investors wont be bothered by it. Shares of Nvidia rose over 8% on Thursday following the companys blockbuster Q3 earnings report, in which Nvidia announced income developed half year-over-year.
It was already [baked] in the stock, the fact that this deal isnt going to happen, Rolland said.
It isn't so much that Nvidia hasnt worked with ARM in the past and wont later on. As Rolland points out, Nvidia has constructed its own ARM-based server before. And the Tegra CPU is the ARM-based chip that controls the Nintendo Switch console.
They could be licensing this and theyve had some accomplishment in the CPU in the past, he said.
As for Nvidias ability to deal with the ongoing chip shortage and global production network snugness, Rolland says Nvidia is obviously superior to other chipmakers.
Nvidia is in an extremely fortunate position, especially relative to its rivals. And thats because of the dual sourcing and purchasing strategy. They hit both Samsung and TSMC foundries for provisions and accordingly they are in a greatly improved position overall, Rolland said.
All things considered, that doesnt mean Nvidia chips will be easier to get hold of anytime soon. According to Huang, the chip shortage will restrict supply in the coming year.
As for Nvidias skyrocketing valuation the companys cost to-earnings ratio stands at 113.45% for the following a year Rolland says its largely supported.
This is a company that has consistently beaten and increased the products and has worked and taken colossal stakes in potentially enormous markets, he said, and thats what the energy around the stock is all about.
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