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Is Nvidia stock a buy after the Arm acquisition block

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There was big news out yesterday for Nvidia (NASDAQ: NVDA). The US Federal Trade Commission (FTC) announced it’s suing to block Nvidia’s $40bn acquisition of UK chip designer Arm. The potential takeover has been rumbling on for over a year now as numerous investigations from global regulators scrutinise the deal. As a current holder of Nvidia stock, I need to understand the risks here.

Let’s take a closer look to see if the shares are a still a buy for my portfolio.

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Nvidia’s current business

Nvidia stock has been on an absolute tear this year. Its share price is up a huge 146% as I write. It makes the company the seventh biggest by market value in the US today, at $803bn. For some additional context, Meta’s (previously Facebook) current market value is $863bn, so not too much bigger than Nvidia nowadays.

Nvidia specialises in graphics processing units (GPUs) that are used in a range of applications, such as video gaming and data centres. Artificial intelligence is another exciting opportunity, with this sector alone expected to grow significantly through this decade. The company is also creating its own omniverse.

Nvidia’s growth forecasts for the fiscal year 2022 are spectacular in my view. Revenue is set to expand 60%, with earnings estimated to grow over 150%. I think this reflects the opportunities open to the business already, even before the potential acquisition of Arm.

Is Nvidia stock a buy?

I previously wrote about the firm’s results back in November, noting the potential risk around the Arm acquisition. It must be taking considerable work time within the company to address concerns from global regulators. This is a distraction for management and takes attention away from running the core business.

The news today from the FTC only heightens this risk. What’s more, the FTC has set a date for the administrative trial of 9 August 2022. Nvidia initially expected the acquisition to complete in 2022. This is clearly going to drag on for a while longer.

But when the news broke yesterday of the FTC’s challenge, Nvidia’s share price didn’t budge. There are two ways to view this. First is that it was expected due to the global scrutiny the deal is already under. And second, Nvidia’s core business already has a number of growth avenues. Therefore the stock is priced to reflect this rather than the additional potential of the Arm acquisition.

Were I to buy more shares in Nvidia, I’d have to separate out the current business, and the potential of the combined company. I view its growth potential as highly attractive without the Arm acquisition, so I’ll carry on holding the shares.

Nevertheless, I think the combined company of Nvidia and Arm would strengthen the business. There’s clearly a long way to go before the acquisition goes through, if it ever does. So for now, I’m going to see how the situation develops before adding to my position.

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Dan Appleby owns shares of Meta and Nvidia. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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