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Dec. 3, 2021, 4:35 p.m. EST

Nvidia stock flirts with correction territory after FTC sues to halt Arm deal

By Wallace Witkowski

Nvidia Corp. shares flirted with a correction Friday, a day after the chip maker’s chances for closing its acquisition of chip designer Arm Ltd. dwindled even further.

Nvidia (NAS:NVDA) shares, which had been down as much as 6% Friday, closed down 4.5% at $306.93, or 8% below their all-time closing high of $333.76 set on Nov. 29. Shares are still up 129% over the past 12 months, compared with a 24% gain on the S&P 500 index (S&P:SPX) .

Late Thursday, the Federal Trade Commission sued to block the $40 billion acquisition of Arm from SoftBank Group Corp.  (TKS:JP:9984)  that has met with several headwinds since it was first  announced back in late 2020 .

In a note, Bernstein analyst Stacy Rasgon, who has an outperform rating and a $360 price target on Nvidia, said of the deal “no one think it will close anyway,” arguing the FTC’s action likely supports thinking at other regulatory agencies, and that Nvidia “will be fine either way.”

The FTC’s release “indicates that the agency has cooperated closely with the competition agencies in the EU, UK, Japan, and South Korea (i.e. virtually every critical geography except for China), suggesting that where the FTC is going, the rest of the world is likely to follow,” Rasgon said.

“Owning Arm would be very nice, and enable Nvidia to help create, and invest in, a broader Arm datacenter ecosystem, and we would love to see it happen,” Rasgon said. “But if they can’t pull it off, they will save the purchase price in cash & stock (originally ~$40B, now closer to ~$75B given the share price appreciation since the deal announcement), and will undoubtedly continue to push forward on their Arm server and DPU efforts standalone.”

Citi Research analyst Atif Malik, who has a buy rating and a $350 price target on Nvidia, said with the FTC action he know expects a 5% likelihood the deal closes, down from a previous 30% chance.

“We view a potential path forward if Nvidia can present remedies that, among other options, might include creating a ‘Chinese Wall’ between the R&D engine and Arm business contracts in order to ease the regulatory antitrust concerns,” Malik said.

While Nvidia shares threatened to fall into correction territory, Advanced Micro Devices Inc. (NAS:AMD) shares closed into a correction Friday, finishing down 4.4% at $144.01, or 11% below their closing high of $161.09 set on Nov. 29.

Both Nvidia and AMD recently posted strong, record earnings amid the continuing global chip shortage.

The PHLX Semiconductor Index (NASDAQ:SOX) finished Friday down 0.2%, or 2.7% off its all-time closing high of 3,912.02 set on Nov. 19.

Link to MarketWatch's Slice.