Chipmakers AMD And Avidia are Making Industry’s Biggest Acquisitions

AMD and Nvidia are taking advantage of huge stock rallies to make big deals while Intel struggles.

The semiconductor industry is experiencing historic consolidation, thanks to a wild rally in the stock market.

The Three Biggest Acquisitions In The Chip Industry

In the past six weeks, two of the biggest three acquisitions ever in the chip industry have been announced, after AMD said on Tuesday that it’s buying Xilinx for $35 billion. Last month, Nvidia agreed to acquire Arm from SoftBank in a deal worth $40 billion.

The only deal keeping those two from being the largest in history was Avago’s $37 billion purchase of Broadcom, which was announced in 2015. The company assumed the name Broadcom.

Both Nvidia and AMD are taking advantage of run-ups in market value to bulk up in the data center, where cloud deployments and new workloads are driving hefty spending. Nvidia shares are up 162% in the past year, while AMD’s stock has climbed 141%. In the universe of large-cap tech companies, only software vendors Zoom and Shopify have performed better.

AMD And Nvidia’s Deal

AMD’s purchase of Xilinx is all stock, and Nvidia is paying mostly stock to SoftBank for Arm, along with some cash.

“They both are using their stock appreciation to conduct M&A,” said Matthew Bryson, an analyst at Wedbush Securities who has the equivalent of a buy rating on AMD and Nvidia. “Technology within the data center market is diversifying and I think both of these companies believe they can better serve that market with a fuller range of solutions.”

AMD has been going head-to-head with Intel in the market for server chips. AMD said at its analyst day in March that it expects data center revenue to account for 30% of total sales by about 2023, up from 15% in 2019. That was before purchasing Xilinx, which develops programmable processors and powers networking and storage products.

“Together, we will be a stronger strategic force powering the next generation datacenter,” AMD CEO Lisa Su said on Tuesday’s conference call after the announcement.

Nvidia comes at the data center market through its graphics processing units (GPUs), which improve the performance of servers, particularly when heavy artificial intelligence algorithms are involved. Arm specializes in smaller chips for a whole range of connected devices, especially mobile devices like smartphones.

Nvidia plans to bring those technologies together to handle more advanced data center workloads.

How About Rival Intel?

“Today, the Internet connects billions of people to giant cloud data centers,” Nvdia CEO Jensen Huang said on the call with analysts after the announcement. “In the future, trillions of devices will be connected to millions of data centers, creating a new Internet of Things that is thousands of times bigger than today’s Internet of people.”

Intel, meanwhile, has been lagging a market that it once dominated. The company said earlier this week that quarterly revenue in its data center business fell 7% from a year earlier, missing analysts’ estimates. The stock is down 19% in the past year, the second-worst performance among large tech companies, behind only Cisco.

There’s plenty that could still get in the way of the deals closing. U.S. regulators will take a close look at the acquisitions, but the potential bigger risk is that China could block one or both deals.

In 2018, China’s State Administration for Market Regulation (SAMR) blocked Qualcomm’s effort to buy Dutch chipmaker NXP in what would’ve been the largest acquisition ever for the industry. A deal that would’ve been even bigger, Broadcom’s attempt to buy Qualcomm, was thwarted by the Trump administration the same year.

SAMR and China’s Ministry of Commerce will get to weigh in on Nvidia’s purchase of Arm, whose architecture is used in 95% of the chips designed in China.

Wedbush’s Bryson predicted the purchase of Arm won’t get approved by China. In a report on Tuesday, he highlighted the possibility that ongoing trade tensions between the U.S. and China could pose a problem for AMD as well.

“While we don’t see the same level of risk that China will block this combination (as with NVDA/ARM), we believe there is some level of risk that the deal won’t be approved depending upon forward US China relations,” he wrote.

Synopsis

Just over six weeks after Nvidia announced its $40 billion acquisition of Arm, AMD said on Tuesday that it’s agreed to buy Xilinx for $35 billion.