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NVIDIA Climbs 6.97% Yesterday on Mellanox Deal

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NVIDIA stock surged on Monday

The stock of chipmaker NVIDIA (NVDA) closed 6.97% higher at $161.14 after the company announced its biggest-ever acquisition deal to buy data connectivity company Mellanox (MLNX) for ~$7 billion in an all-cash deal on March 11. NVIDIA has agreed to pay $125 per Mellanox share, according to the agreement, which is a premium of 14% to Mellanox’s stock price on March 8.

NVIDIA won the deal after beating rivals Intel (INTC), Microsoft (MSFT), and Xilinx (XLNX), which had also reportedly shown interest in buying Israel-based Mellanox. Mellanox’s InfiniBand networking technology, which is a key component in the HPC (high-performance computing) space, attracted both Intel and NVIDIA. Therefore, the agreement is expected to bolster NVIDIA’s presence in the HPC market.

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The deal could boost the data center business

The acquisition would complement NVIDIA’s focus on computing with Mellanox’s strength in Ethernet and other networking technologies, and would thus create next-generation datacenter-scale computing solutions, which are in high demand. In the era of AI (artificial intelligence), cloud services, smartphones and other connected devices, and automotive cars, NVIDIA’s deal should help it tap into the growing demand for data centers.

NVIDIA’s data center business contributed ~25% to the company’s total revenue, which declined 24.1% YoY in the recently reported fourth quarter of fiscal 2019. However, the data center business segment showed weakness in the quarter, and its revenues dropped 14% from the preceding quarter. The company couldn’t close many deals in January, which led to softness in segment revenues. The uncertain economic scenario also made datacenter customers cautious.

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