One week after closing its acquisition of networking hardware company Mellanox TechnologiesNVIDIA (NASDAQ:NVDA) announced today that it plans to acquire data center networking specialist Cumulus Networks.

Cumulus Networks proposes networking software-defined solutions that run on any compatible networking hardware, such as Mellanox's devices. As a result, this acquisition will reinforce NVIDIA's data center portfolio, allowing the company to offer complete networking solutions -- chips, software, and hardware -- for enterprise and cloud data centers. 

NVIDIA's data center business is poised to maintain its impressive growth. Over the last three years, it has been growing data center revenue at a 53% compound annual rate (CAGR) to reach $2.98 billion in fiscal 2020, which represented 27% of the company's total revenue. 

Cloud on blur computer data center background.

Image source: Getty Images.

Building a network data center offering against strong competition

Management didn't disclose the terms of the transaction, but the size of the acquisition should remain modest relative to NVIDIA's scale. For context, Cumulus Networks accumulated only $134 million of funding prior to the deal announced today. As a comparison, NVIDIA's balance sheet showed $10.9 billion of cash, cash equivalents, and marketable securities, and $2.0 billion of debt at the end of last quarter. 

In any case, NVIDIA will be competing in the crowded cloud networking data center market against the growing cloud-network specialist Arista Networks and the tech giant Cisco Systems, among others.

NVIDIA's significant footprint in data centers will provide cross-selling opportunities to scale Cumulus Networks' solutions, but it remains to be seen how the company's enhanced networking portfolio will perform against these strong and experienced competitors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.