Nvidia Gets New Street-High Price Target On Arm Deal: 'Ubiquitous Across Semi Industry'

NVIDIA Corporation's NVDA $40 billion deal to buy U.K. chip designer Arm Holdings has prompted an analyst at Needham to lift his price target to the highest on Street.

The Nvidia Analyst: Rajvindra Gill maintained a Buy rating on Nvidia and increased the price target from $600 to $700.

The Nvidia Thesis: Financially, the Arm acquisition would be potentially accretive, adding $1.20-$1.65 to Nvidia's earnings per share in calendar year 2022, Gill said in a Tuesday note.

The new price target is based on 52 times P/E multiple on calendar year 2022 EPS of $13.50, with $12 for base Nvidia and $1.50 for Arm.

Strategically, the Nvidia-Arm combination will create the leading AI computing platform in the semiconductor industry, Gill said. The combo will become ubiquitous across the semiconductor industry.

The combination of three processors under one house – GPUs for accelerated computing, NPUs for networking and security processing and CPUs for low latency, single thread predictable processing – positions Nvidia to be the leading AI platform in the industry, the analyst said.

Further, Nvidia can quickly bring its GPU IP to Arm's broad CPU ecosystem of smartphone, tablet, infrastructure, AI/ML, IoT and embedded automotive chips.

"The other major strategic rationale for the deal is to target the "trillions" of devices that will be connected to the data center, ranging from smart retail, smart streets, smart robotics, industrial, wearables, and auto," the analyst wrote in the note.

All those devices, he said, will be accelerated and include AI capability in the near future. The analyst estimates a $250 billion total addressable market by 2022, $95 billion devices $80 billion data center and $75 billion for auto, edge and IoT.

Nvidia shares traded around $517 at the time of publication.