Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

  • Updates
  • disruptive innovation

Does Nvidia’s share price still have upside despite ARM deal woes?

Nvidia’s [NVDA] share price slipped last week as the UK government opened an inquiry into the chipmakers' proposed $29bn takeover of Arm, amid national security concerns. 

Oliver Dowden, the UK Culture Secretary, issued a “public interest intervention notice” and wrote to the Competition and Markets Authority (CMA) to start a “Phase 1” investigation into the deal. The regulator will report its findings in July, at which point Dowden can decide whether to approve the deal, give it the go-ahead under certain conditions or request a more detailed inquiry.

“Following careful consideration of the proposed takeover of Arm, I have today issued an intervention notice on national security grounds. We want to support our thriving UK tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this,” said Dowden. 

"We want to support our thriving UK tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this" - Oliver Dowden, UK Culture Secretary

 

Why did Nvidia’s share price slip?

Arm is being sold by Softbank [9984.T], which bought the Cambridge-based company in 2016 for £24.3bn. The chipmaker’s technology is used for critical infrastructure and defence applications in the UK, hence the national security concerns.

The UK government intervention is the latest twist in a deal that has been beset by numerous regulatory issues. Aside from national security issues, there are fears that the merger will reduce competition in the semiconductor sector. 

In January, the CMA had announced that it would look at the deal's impact on competition and whether it would create an incentive for Arm to treat Nvidia’s rivals differently, for example by raising costs or limiting access. Hermann Hauser, co-founder of Acorn Computers, which developed the first Arm processor before the firm was spun out, wrote to the Foreign Affairs Committee in October to say that if the deal were to proceed it would create the next US tech monopoly.  

Tech companies in China — home to some of the world’s biggest semiconductor companies — have called on the country’s regulator to also weigh in on the deal. An underlying concern is the acquisition of Arm by an American company comes at a time when China’s access to US semiconductor technology is being restricted. 

 

Where next for Nvidia’s share price and Arm?

Speculation is that Softbank might find it easier to cancel the deal altogether. Given the global semiconductor shortage, Arm returning to the stock markets could be a lucrative move for the Japanese bank. Some analysts have valued Arm at £40bn, which would make Softbank the real winner should it decide to take Arm public once again. 

£40 billion

Some analysts' valuation of Arm

Nvidia had hoped to complete the deal by 2022. Still, Nvidia’s share price is up circa 17% so far this year and Wall Street remains bullish on its future. The stock carries a $661.61 price target, which would see a 6.86% upside on the Nvidia’s share price through 26 April’s close. Of the 38 analysts offering recommendations on Yahoo Finance, seven rate Nvidia a strong buy and 14 rate it a buy.

All eyes will now be on the CMA’s report in the summer, which should provide an indication on whether the deal will go ahead or not

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

  • Includes free newsletter updates, unsubscribe anytime. Privacy policy

Free ebook

Tricks of the trade: 7 interviews with the world’s top traders

Get it now

Related articles