Nvidia (NVDAWealth Strength IndexNVDA is Extremely Flat and trending Up) has won the bidding to acquire Mellanox Tech (MLNX). Nvidia has said that it expects the acquisition, which will be funded through cash on the Nvidia’s balance sheet, to be accretive to non-GAAP gross margin, non-GAAP EPS, and free cash flow immediately. Intel (INTCWealth Strength IndexINTC is Moderately Flat and trending Up) was among the other companies looking to acquire Mellanox.
The deal is aimed at increasing Nvidia’s data center business and at getting ahead of trends toward connecting more and more components in those centers.
Mellanox’s technology focuses upon transferring data at high speeds from one component to another both within individual computers and among computers in the data center. As data centers have growth in size and as the amount of data that each one handles has grown, the day is approaching when data centers with many servers will essentially operate as one giant computer with the consequent calls for faster interconnections that will enable artificial intelligence software and hardware to find patterns more quickly in all the data moving through the data center.
The sale of its chips to data centers has become crucial to Nvidia as weakness in the Chinese economy (and trade battles) has cut exports to the market and as the sale of these massively parallel chips to the cryptocurrency sector has plunged with the downturn in cryptocurrency mining. Nvidia, the largest maker of graphics chips used by computer gamers, has pushed deeply into the market for chips tailors for artificial intelligence processing. That unit at Nvidia has tripled sales in the last three years.
Shares of Nvidia have been pummeled by that slowdown in key markets (and by emerging competition from companies that include Intel.) The shares traded at a high of $289.36 on October 1, 2018, and then fell to $127.99 on January 3, 2019. Recently they have staged something of a recovery climbed 22.5% from January 29 through the close on March 11.
Nvidia is a member of my 12-18 month Jubak Picks Portfolio. The shares are down 17.9% since I added them to the portfolio on December 29, 2017. The shares closed up 6.67% today to $161.14.