Jefferies Raises Nvidia Target After Announcement Of ARM Deal

NVIDIA Corporation NVDA announced a definitive agreement to acquire ARM for $40 billion in a cash and stock deal. The company expects the deal, which is still subject to regulatory approvals, to close in 18 months.

The acquisition is likely to be “slightly accretive” in the first year after the deal closes, according to Jefferies.

The Nivida Analyst: Mark Lipacis maintained a Buy rating for Nivida, while raising the price target from $570 to $680.

The Nivida Thesis: The acquisition will position Nivida “not just to capture 80% of the ecosystem value in the data center, but also unify the compute ecosystem between the edge and data center,” Lipacis said in the note.

He expects the merged entity to have a five-year earnings power of $50 per share.

“Nvidia is supplying an ecosystem in the data center, much like Apple supplies to the smartphone market, or Intel and Microsoft did in PCs. In contrast to other traditional semiconductor competitors, Nvidia's ecosystem extends beyond processors, to high speed interconnect (MLNX) and a software stack,” the analyst wrote.

“During the PC Era, Microsoft's PC operating profit was similar to Intel's, and we think Nvidia's earnings potential framework should be modeled more like Wintel, with half of its earnings power coming from the ecosystem that it created. We model Nvidia Data Center processor revenues of $34bn in 2025, and Data Center Ecosystem (software) of an additional $34bn,” he added.

NVDA Price Action: Shares of Nivida had surged 4.5% to $509 at the time of publication Monday.