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FTC Sues to Block Nvidia Deal Over Antitrust Issues

The combined firm would have the power to strike out rivals that run data centers and driver-assistance systems in cars.

The Federal Trade Commission on Thursday challenged chipmaker Nvidia's  (NVDA) - Get NVIDIA Corporation Report $40 billion deal to acquire U.K. chip-design company Arm, citing what it said might become anticompetitive behavior.

The antitrust regulator said the proposed deal would give Nvidia control over computing technology and designs that rival firms rely on to develop competing chips.

Nvidia is the largest chip company in America by market value.

FTC said the combined firm would have the power to stifle competition and outbid rivals that operate data centers and driver-assistance systems in cars. 

Companies like Meta Platforms  (FB) - Get Meta Platforms Inc. Class A Report formerly Facebook, Apple  (AAPL) - Get Apple Inc. Report, Tesla  (TSLA) - Get Tesla Inc Report and Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report are now competing in sectors like data centers or driver-assistance systems. 

That has many of them attempting to develop their own chips and tech support to outbid rivals.

"The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said FTC Bureau of Competition Director Holly Vedova in a statement.

“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," Vedova added.

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"The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations," Vedova said.

Analysts tracking the company had anticipated such a decision. Last month, Wedbush analyst Matt Bryson had said that the firm remains "skeptical that this deal will be approved by regulators." 

Wedbush also said that Nvidia stock had become too expensive.

Shares of the Santa Clara company closed Thursday's trading session 2.2% higher at $321.26. Shares were rising 0.46% in after hours trading.

Nvidia beat Wall Street consensus estimates by 6 cents a share with a third-quarter bottom line of $1.17 a share, powered by the revenue surge to $7.1 billion.

Data-center revenue, which accounts for some 41% of Nvidia's overall total, rose 55% to $2.94 billion. Gaming was up 42% to $3.22 billion, while crypto mining added a $105 million boost.

"As we move into this next step in the FTC process, we will continue to work to demonstrate that this transaction will benefit the industry and promote competition," an Nvidia Spokesperson said in an emailed statement.

"NVIDIA will invest in Arm’s R&D, accelerate its roadmaps, and expand its offerings in ways that boost competition, create more opportunities for all Arm licensees and expand the Arm ecosystem," a company spokesperson added. 

"NVIDIA is committed to preserving Arm’s open licensing model and ensuring that its IP is available to all interested licensees, current and future,"