The Long-Term Potential for NVIDIA and ARM Is Likely Being Undervalued

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It’s no secret: NVIDIA‘s (NASDAQ: NVDA) pending acquisition of ARM Holdings from SoftBank Group (OTC: SFTBF) has the potential to seriously shake up the global semiconductor industry. NVIDIA is a top tech researcher (it spent nearly one-quarter of its trailing 12-month revenue on R&D), and adding ARM to the mix will only bolster its position as a leader in future computing development.

But what exactly is NVIDIA getting from its purchase from SoftBank? This is actually a pretty good deal, and it’s one that is being underestimated by NVIDIA’s current stock price. 

The total purchase price for ARM will be up to $40 billion. SoftBank will receive $12 billion in cash (paid from NVIDIA’s balance sheet), $21.5 billion in new NVIDIA stock (worth about 7% of NVIDIA’s $326 billion market cap as of this writing), and up to $5 billion in cash or stock based on ARM’s financial performance post-closing of the deal. ARM employees will receive $1.5 billion in NVIDIA stock after the deal closes.

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