There's a '50/50 chance' of delay of Nvidia deal, says analyst
ARK Invest Analyst James Wang joins The Final Round panel to break down the details Nvidia’s acquisition of SoftBank’s Arm Holdings and whether or not regulators will attempt to block the deal.
SEANA SMITH: Into that Arm-Nvidia deal that we did get out today was a $40 billion acquisition by Nvidia of Arm, buying it from SoftBank. And for more on this, we have James Wang. He's an analyst at ARK Invest. And James, I'd love to just get your thoughts, first of all, just on your take, your thoughts on this deal. Does it make sense? Do you think Nvidia got a good deal for Arm from SoftBank? And why are we seeing shares pop almost 6% today of Nvidia?
JAMES WANG: You know, when I first heard about this deal when it was still rumors, I thought it was actually a terrible deal. I thought it didn't make any sense. The big problem with M&A is that it's great for the banks, but not so good for the companies, especially when it's a horizontal company like Arm being integrated with a vertical company like Nvidia. It is a conflict of interest between its customers.
And then as we thought more about it, it actually started making more and more sense to us. And it really is a case of you have to look at the semiconductor industry as a whole. What is happening is we're entering the twilight era of Moore's law, and customers need to build their own custom solutions to get more performance. It can't just go to Intel every year or two and get a free upgrade.
So in an era where everyone needs to build custom solutions and they need accelerated-- accelerator solutions, which Nvidia excels at, this is the perfect marriage. Arm has the largest install base of developers in the world. And Nvidia has the world's best accelerator in AI technologies in the world. And they can really help their business for each other, especially in the data center.
SEANA SMITH: Well, James, I wanted to ask you just about the regulatory and the competitive concerns here because I think that that is right to bring up. And I think that is a question that a lot of people are asking today. Do you think that this is something that will ultimately be approved, that maybe Arm will still be able to be this neutral supplier out there and some of those anti-competitive concerns that have been raised because of this deal are maybe overstated at this point?
JAMES WANG: I think it is a very tricky regulatory environment for this deal. Nvidia's last acquisition was an Israeli interconnect company called Mellanox. And that was held up for a long time. I think they had most of the trouble from China. This deal requires a clearance from four countries, US, UK, China. And-- and it's, I think, far more complicated because it is a UK-based company operate-- and Japan of course.
So I think it's probably at 50/50 at this point. Jensen, the CEO of Nvidia, made a very interesting point on the call saying that because this company is based in the UK, it will not fall under US, kind of trade barriers and trade regulations. We'll see if that's true long term, but I think this will be definitely a complicated deal to approve. And they gave an 18 months guidance to get this done.
EMILY MCCORMICK: Hi, James, this is Emily. I wanted to ask a little bit about the open letter that we got from Arm's co-founder Hermann Hauser talking to UK Prime Minister Boris Johnson about his concerns with this deal, that it might ultimately have, as you were talking about, some issues on the regulatory side, on the trade front side, just in terms of whether Arm might actually be able to continue building out its R&D in the UK as opposed to Nvidia, which is, of course, a US company based in California.
JAMES WANG: Yeah, I read the letter, as well. It-- it raised the point that if Arm gets acquired, basically the technology that Arm provides, which is inside every-- every smartphone, inside consoles, would basically fall under US regulatory environment. So if the Trump administration or the next administration says, we're not going to export this stuff anymore. We're going to ban it. Say, for-- for China, that could be a huge ding for the business.
Jensen did address this on the call today with investors. And he said that it would not fall under this kind of a jurisdiction because the-- the rulings are written as the technologies relative to their country of origin. In this case, it's the UK. So he argues it wouldn't be under US interference. Now, we don't know if the US regulatory bodies will necessarily agree with that, or what that will look like post Brexit closure at the end of this year.
So it is a little dicey. But that said, Arm was already operated today-- well, already acquired by a Japanese company. And that is not, you know, any closer to the UK, I think, in an ideological compass. SoftBank has not turned Arm into a superstar in the few years it had helped the stock, the company. But it has invested a good amount, which has helped them get into the data center. And we've seen Amazon roll out data center CPUs based on Arm.
I think Nvidia will have more success helping Arm succeed. I think ultimately for the UK's interest, Arm's success is most-- is what's most important. Whichever company can help them scale and get into even more markets, get even more AI content, I think is going to be beneficial for-- for the UK.
Nvidia has dedicated and committed to dollars to expand the R&D effort based out of Cambridge. Nvidia has a lot of experience building out UK semiconductor talent through its Icera acquisition a few years before. So I think they will be good for-- for Arm in the long run.
ANDY SERWER: You have some great insight there, James, and-- but one comment you made almost as an aside, I wanted to follow up on, which is the twilight of Moore's law.
JAMES WANG: Yeah.
ANDY SERWER: So that-- I mean, you know, you're talking about Gordon Moore and doubling the computer power in chips. But-- but that sounds like the twilight of Intel.
JAMES WANG: Yes.
ANDY SERWER: Is that what you're saying?
JAMES WANG: Well, Moore's law is bigger than just Intel.
ANDY SERWER: Right, I know that, but I mean-- in-- in the legacy chip makers essentially.
JAMES WANG: Well, Moore's law affects every company that built semiconductors because the whole reason why, you know, the world of atoms-- the world of-- of bits move faster than the world of atoms is because we've had this free lunch every two years of doubling transistor count. We are still getting some scaling in transistor count, but the traditional, faster performance guaranteed from Intel is definitely no longer true. Intel's been stuck on the same manufacturing capacity for five years now, basically.
So this-- if this deal goes through and if Nvidia is able to standardize and turbocharge Arm's platform and fuse it with its own CUDA and AI technology, Nvidia could definitely be the world's most dominant semiconductor company and-- and truly show that its market cap is worth more than Intel, which the market had basically signaled and anticipated earlier this year.
SEANA SMITH: Nvidia's stock up another 5% today on this news. But James Wang, great to get your perspective of Ark Invest. We'll have you back soon. Thanks so much for joining us.
JAMES WANG: Thank you.