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Why NVIDIA Stock Jumped Today

By Joe Tenebruso – Updated Sep 14, 2020 at 6:22PM

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The tech titan announced a blockbuster $40 billion acquisition.

What happened

Shares of NVIDIA (NVDA -1.58%) climbed on Monday after the chipmaker said it would acquire UK-based chip designer Arm Limited from Japanese conglomerate SoftBank (SFTBF -2.16%). By the close of trading, Nvidia's stock was up 5.8% after rising as much as 9.5% earlier in the day. 

So what 

NVIDIA will pay SoftBank as much as $40 billion, including $21.5 billion in stock, $12 billion in cash, $5 billion in performance-based earnouts, and $1.5 billion in equity to Arm employees.

In return, NVIDIA will obtain control over Arm's technology, which powers billions of mobile devices made by companies such as Apple, Samsung,and Microsoft. Combining Arm's vast device ecosystem with NVIDIA's leading graphics processing and artificial intelligence capabilities would create a technological titan in the global computing industry.

Pawn chess pieces are surrounding a king piece.

NVIDIA stock rose on Monday as investors cheered its takeover bid for Arm. Image source: Getty Images.

Commenting on the deal, NVIDIA founder and CEO Jensen Huang said:

AI is the most powerful technology force of our time and has launched a new wave of computing. In the years ahead, trillions of computers running AI will create a new internet-of-things that is thousands of times larger than today's internet-of-people. Our combination will create a company fabulously positioned for the age of AI.

Now what 

NVIDIA expects the deal to be immediately accretive to its adjusted earnings per share. But before it can be completed, a host of regulators around the world will need to sign off on the merger. Gaining their approval will be no easy feat, and regulatory approval is expected to come no sooner than 18 months from now, if at all.

If the deal is approved, NVIDIA would become a powerful force in nearly every major computing category, including data centers, mobile devices, robotics, autonomous vehicles, 5G communications, and the internet of things, among others. 

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Microsoft, and NVIDIA. The Motley Fool recommends Softbank Group and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

Stocks Mentioned

Nvidia Stock Quote
Nvidia
NVDA
$166.10 (-1.58%) $-2.66
SoftBank Group Stock Quote
SoftBank Group
SFTBF
$43.75 (-2.16%) $0.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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