Graphics card maker Nvidia’s (NVDA) plans to buy Arm, which licenses chip designs, look all but dead. After the Federal Trade Commission filed a lawsuit against the deal on Thursday. Apparently, the move is just the latest blow to the $40 billion deal. Which would have been among the largest mergers in the history of the chip industry.
However, Nvidia’s stock rose slightly on the news late Thursday, but it declined on Friday along with the broader market. Investors may have realized that the Arm deal was on life support and unlikely to go through.
According to Chris Rolland, senior equity analyst at Susquehanna. The deal’s demise was already priced into Nvidia’s stock price following Q3 earnings in November.
Rolland explains that Nvidia’s own language during its Q3 earnings call seems to indicate that the acquisition would not be a success.
Some of the commentary [on Wednesday] puts the final nail in the coffin for Arm,” Rolland said.
In its lawsuit, the FTC claims that the Nvidia deal would give one of the largest chip companies control over the technology. The company that rivals use to develop their own chips.
“In its complaint, the FTC alleges that the combined firm would have the means and incentive to suppress innovative next-generation technologies, such as those used in data centers and in car safety and assistance systems,” the commission said in a statement.
“Nvidia will continue to prove that this transaction will benefit the industry and promote competition as we move forward in the FTC process,” says a Nvidia spokesperson in response to the suit.
Following the U.K.’s competition commission’s in-depth investigation into the proposed deal, the FTC filed suit. The EU and China must also approve the deal. Several industry leaders, including Qualcomm (QCOM), Intel (INTC), Microsoft (MSFT), and Google (GOOG, GOOGL), have all spoken out against the deal.
As Jensen Huang, Nvidia CEO, put it, “if Arm were part of Nvidia, we could accelerate their R&D scale.”
Nvidia wouldn’t necessarily suffer from the loss of the Arm deal, however. Currently, the company produces processors based on Arm’s designs, and it can do so in the future. Yes, it won’t be able to charge competitors to use Arm’s designs. But it will also not face setbacks in its production pipeline.
Additionally, Nvidia is a graphics and AI company. The company will have to innovate in those areas, like teaching self-driving cars how to navigate streets with its Omniverse.
So, even though the Arm deal does appear to be over, Nvidia isn’t completely out of the picture.