Chipmaker Nvidia could join tech's trillion-dollar club if Arm deal wins regulatory approval, analyst says

Published Thu, Nov 19 202012:31 AM EST

(This story is for CNBC PRO subscribers only.) SINGAPORE — If chipmaker Nvidia can overcome regulatory hurdles to close its $40 billion acquisition of Arm, then it can potentially become a member of tech's trillion-dollar club , according to RBC Capital Markets. The California-headquartered company said in September that it planned to acquire U.K.-based semiconductor firm Arm from Japanese conglomerate SoftBank. That deal could have significant implications in the semiconductor industry since Arm develops technology that is used by other firms to make low-power chips used in mobile devices and is a supplier to most of Nvidia's competitors. Nvidia's plan to buy Arm is likely motivated by something called AI-as-a-Service, according to Mitch Steves, a research analyst at RBC Capital Markets. "Essentially what we think they're trying to do is extend their architecture to all of Arm's chips because they only get about 8 cents of value per chip. Nvidia gets a 100+ value per chip that they sell," Steves said Thursday morning on CNBC's " Squawk Box Asia ." "I think this is a very significant transaction for them and I honestly would not be surprised to see Nvidia become a trillion-dollar company, assuming that they can close that transaction," Steves added. Nvidia's market cap is around $331.8 billion and the stock has risen a little over 128% this year. The stock finished near flat during normal trade and fell nearly 2% after hours on Wednesday. The company said Wednesday that it expects to close the Arm acquisition in the first quarter of 2022. But the deal, which would create the largest chipmaker in the West by market value and global reach, faces potential regulatory challenges — particularly from China where much of the tech industry relies on Arm. "I'm not sure how the transaction is going to shake out," Steves said. "We had some issues closing deals that were smaller in size in the (semiconductor) space. This is obviously one of the largest deals in history. So I'm not sure if it does close and I think you're right that China could be an issue here." "But again, if it does close, we'll be very bullish on the transaction because they'll be able to integrate their software architecture with the Arm chip install base so that'll be a net positive for Nvidia in our view," he added. Eric Ross, chief investment strategist at Cascend Securities, agreed that the deal is unlikely to close and that the chipmaker is in a weak negotiating position over it. "I think it's a done deal as in it's not going to get done because of the regulatory environment. It also puts Nvidia in a very difficult position because of how many companies and regulators in so many different countries are very nervous about having Arm cut off from them that they're asking for a lot of incentives to be provided by Nvidia " he said Thursday on CNBC's " Street Signs Asia. " Still, he said he remains bullish about the company in 2021 and 2022 and recently raised the price target on the stock from $610 to $620 on stronger supply chain fundamentals. CNBC PRO subscribers can access live PRO Talks, including our Dec. 2 discussion on opportunities and risks in international markets.

Simpson Chung uses a virtual reality headset during the NVIDIA GPU Technology Conference, which showcases artificial intelligence, deep learning, virtual reality and autonomous machines, in Washington, DC.

Saul Loeb | AFP | Getty Images

(This story is for CNBC PRO subscribers only.)

SINGAPORE — If chipmaker Nvidia can overcome regulatory hurdles to close its $40 billion acquisition of Arm, then it can potentially become a member of tech's trillion-dollar club, according to RBC Capital Markets.

The California-headquartered company said in September that it planned to acquire U.K.-based semiconductor firm Arm from Japanese conglomerate SoftBank. That deal could have significant implications in the semiconductor industry since Arm develops technology that is used by other firms to make low-power chips used in mobile devices and is a supplier to most of Nvidia's competitors.