Nvidia Corp.’s (NVDA) previously announced $40 billion acquisition of chip design provider Arm Ltd. faces another obstacle, as the U.S. Federal Trade Commission has sued to block the deal on the grounds of maintaining healthy competition.
The Commission voted 4-0 to file a complaint against Nvidia, Arm Ltd., and Arm’s owner Softbank Group. The administrative trial is scheduled to begin on August 9, 2022.
Key Hurdles in the DealThe regulator is of the opinion that the deal will give Nvidia access to the computing technology and designs that its peers use to develop their own competing chips. This might lead to them curbing competition by deteriorating product quality, reducing innovation, raising prices, and lowering choices.
As per FTC’s complaints list, the deal could harm consumers who benefit from Arm-based products. Notably, FTC pointed out three markets where competition will be most affected - high-level advanced driver assistance systems, Data Processing Unit (DPU) SmartNICs and Arm-based CPUs for cloud computing service providers. (See Nvidia stock charts on TipRanks)
Also, the acquisition would allow Nvidia access competitively sensitive information of Arm’s licensees, some of which are its rivals. Thus, FTC mulls that this will result in a lower incentive for Arm to pursue innovations that conflict with Nvidia’s business interests.
The Director of FTC Bureau of Competition, Holly Vedova, said, “Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.”
Wall Street’s TakeFollowing the news, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on the stock and raised the price target to $400 from $230. The new price target implies 24.5% upside potential from current level.
Feinseth noted, “NVDA’s growing dominance in Data Center processing, gaming, artificial intelligence, machine learning, and autonomous vehicle technology will, along with new areas in science and medicine, continue to drive increasing demand for NVDA’s advanced high-speed GPUs and newly introduced DPUs empowering advanced AI capabilities in Data Centers.”
“NVDA’s strong brand equity innovative capabilities and market-leading position, especially in AI, will drive new product development and increasing demand for its GPUs, which will continue to drive higher Returns on Capital, increasing Economic Profit, and greater shareholder value creation,” the analyst added.
Consensus among analysts is a Strong Buy, based on 24 Buys and 2 Holds. The average Nvidia price target of $359.75 implies 12% upside potential to current levels.
Positive SentimentsTipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Nvidia, with 4.5% of investors on TipRanks increasing their exposure to NVDA stock over the past 30 days.
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Nvidia (NVDA) stock has been red-hot of late, blasting off around 70% from its early-October lows on the back of an incredible quarter, an impressive outlook, and euphoria over the company's role in the future of the metaverse.
Undoubtedly, Nvidia's incredible GPUs will help power the metaverse of the future that so many firms want a slice of, and with that could come even more demand for graphical power.
For now, Nvidia is a leader in GPUs, with applications that span a wide range of the hottest technological trends, from smart cars to machine learning, to Bitcoin mining and the metaverse.
Indeed, Nvidia is no longer just a gaming hardware firm. It's so much more, and with that, it's tough to fathom the magnitude of long-term growth the firm is capable of under the leadership of its legendary top boss Jensen Huang.
Arguably, Mr. Huang is one of the brightest minds in Silicon Valley. Despite the incredibly frothy valuation, it's an absolutely terrible idea to bet against the man, or his company, as Nvidia looks to form a moat around its dominance in the GPU space.
Despite the many exciting developments that have supported the latest parabolic move higher, I'm in no rush to chase the stock at a new high. Its incredibly stretched valuation metrics (34.1 times sales) leave it vulnerable to a steep pullback.
For now, I am neutral on the name but would look to step in on a meaningful dip if the stock experiences a blow-off top. (See Analysts’ Top Stocks on TipRanks)
Too Much Excitement Baked into NVDA Stock?It's tough to miss such a run in a stock you've kept on your watchlist. While recent developments are incredibly bullish for long-term fundamentals, investors must be careful they're not overpaying for a name that already has perfection baked in.
The company's third-quarter results were truly outstanding. Gaming and Data Center segments powered the firm to a solid beat. Demand continues to be overwhelming, and with supply chain issues still dampening the results, it's tough to gauge just how incredible the quarter could have been had COVID-19 disruptions not impacted the supply side.
It wasn't just Gaming and Data Centers that were strong. Nvidia experienced solid results right across the board. With a front-row seat to many emerging technological trends, it's not a mystery as to why the price of admission into the name continues to be hefty.
Into the MetaverseMeta Platforms' (FB) focus on the metaverse could be a massive boon to Nvidia for many years to come. Still, it's unclear as to how much the demand for Nvidia's offerings will be boosted, given the nascent state of the metaverse. Indeed, a mainstream metaverse like the one touted by Meta Platforms could still be years away.
Regardless, Nvidia is in a great spot to benefit from the trend, with its Omniverse Digital Twin technology, which could unlock even more growth from a company that's continued raising the bar.
It's hard not to get incredibly excited about Nvidia and its incredible innovations. Still, the valuation is tough to get behind, especially if supply chain issues continue plaguing the firm in the new year and beyond.
Wall Street's TakeTurning to Wall Street, Nvidia has a Strong Buy consensus rating, based on 22 Buys and two Holds assigned in the past three months. The average Nvidia price target of $358.36 implies 9.2% upside potential.
Analyst price targets range from a low of $285 per share to a high of $400 per share.
Is the Parabolic Pop Sustainable?With a consensus analyst price target that keeps rising (currently at $358.36), Nvidia is one of the high-flyers that could continue to defy the laws of gravity.
As such, investors in the name should be in no rush to take profits just yet. The stock is incredibly expensive, but it's expensive for very good reasons, and the list of reasons seems to be growing with time.
Disclosure: Joey Frenette doesn't own shares of any mentioned companies at the time of publication.
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