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Nvidia Shares Fall as U.K. Investigates Arm Purchase

Nvidia dipped more than 2% as regulators said they would look at pricing and intellectual property issues.
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Nvidia  (NVDA) - Get NVIDIA Corporation Report shares fell Wednesday after U.K. regulators announced they’re investigating the chip giant’s proposed $40-billion purchase of U.K. semiconductor powerhouse Arm.

Arm, which designs chips made by other companies, especially mobile technology firms, is owned by investment titan Softbank  (SFTBY) . The U.K. Competition and Markets Authority is investigating whether the merger would “result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services,” it said.

“The CMA is likely to consider whether, following the takeover, Arm has an incentive to withdraw, raise prices or reduce the quality of its IP [intellectual property] licensing services to Nvidia’s rivals.”

Nvidia recently traded at $522.37, down 2.58%. It has soared 122% over the last year, helped by its strong financial performance.

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Morningstar analyst Abhinav Davuluri assigns Nvidia a narrow moat rating. “We are raising our fair value estimate for Nvidia to $340 per share from $300, which is based upon a 50% probability of Nvidia closing its acquisition of Arm,” he wrote in a November commentary.

“Our stand-alone value was raised to $288 from $250 after incorporating Nvidia’s strong [third-quarter] results and outlook for the fourth quarter. If the deal closes, our fair value estimate will increase to $392 per share,” Davuluri wrote. 

“Nvidia is paying a high multiple for ARM’s earnings, but given that the GPU [graphics processing unit] leader’s share price is at a significant premium to our updated stand-alone $288 fair value estimate, we like that Nvidia is using its rich shares to fund a large portion of the deal,” he added.

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