Federal Trade Commission Chair Lina Khan highlighted the soaring stock prices of Nvidia and Arm as a case in point to illustrate how obstructing mergers can foster heightened innovation.
Addressing attendees at a Bloomberg and Y Combinator conference on Tuesday, Khan pointed out that when the $40 billion merger encountered hurdles due to “significant regulatory challenges” in 2022, it compelled both entities to innovate and introduce novel products.
Khan’s remarks imply that she and the FTC view the thwarted Nvidia deal, which she termed as potentially “the largest semiconductor chip merger in history,” as a successful antitrust intervention that doesn’t impede companies from pursuing financial prosperity or embracing emerging technologies like artificial intelligence.
“The trajectories of both companies in the aftermath of this action have demonstrated how organic growth and competition can drive firms to further innovate in ways that benefit both the industry and the public,” Khan articulated at the conference.
According to Khan, the proof lies in the stock prices of the companies.
“Not only has Nvidia maintained its position as the leading AI chipmaker in the AI chip arms race, with a soaring stock valuation, but Arm ultimately went public and boasts a forward earnings multiple that is more than double Nvidia’s,” Khan remarked.
In September 2020, Nvidia unveiled its intention to acquire Arm for $40 billion in cash and stock. Both companies lauded the deal as a means to establish the foremost computing company for the “age of AI.”
However, the acquisition swiftly encountered resistance from regulators in the U.S., Europe, and Asia. Arm’s fundamental technology, its instruction set architecture, serves companies like Apple, Google, and Qualcomm in crafting processors. Arm is frequently characterized as a “neutral supplier” that doesn’t compete with its clients.
Concerns arose among those companies and regulators that Nvidia could wield control over access to Arm’s architecture, potentially granting it the authority to restrict access to a crucial component necessary for producing their chips. Nvidia pledged to invest in Arm and permit other firms to continue utilizing Arm’s chip designs, thus preserving the company’s licensing model.
The FTC initiated legal action in late 2021 to thwart the merger, and in conjunction with other regulatory pressures, the deal collapsed in less than three months.
“Our analysis concluded that granting one of the largest chip companies dominion over the computing technology and designs that competing firms rely on to develop their own rival chips would stifle competition and impede innovation in next-generation technology,” Khan remarked on Tuesday.
Since the deal fell through, Nvidia shares have surged as the company has cemented its leading position in AI chips. Nvidia’s valuation has nearly tripled primarily due to robust sales of its AI chips for servers like the A100 and H100. Presently, it’s valued at just under $2 trillion, making it the third-most valuable U.S. company.
Arm’s stock has more than doubled since the company went public in August 2023, although SoftBank still retains 90% ownership of the company’s shares. Investors have driven up its share price in anticipation of its technology playing a pivotal role in developing and deploying AI software.
Arm is presently valued at over $143 billion, and as Khan underscored, investors have assigned the company a high earnings multiple, indicating their anticipation of robust growth in the company’s future.
