Nvidia Trying to Buy Itself Some Growth
On Monday morning Nvidia announced that it would be buying Mellanox, a supercomputer chipmaker, for $6.9 billion. They will be paying in all cash, and I guess investors were quite happy about it. Nvidia’s stock was up 7% today on the news.
Mellanox was a hot commodity in the computing and data center space as Microsoft and Intel were apparently bidding for them. They specialize in optimizing workloads on supercomputers, which Nvidia is heavily invested in. The two companies have already collaborated when they built the two fastest supercomputers in the world.
Here is what Nvidia said about the acquisition:
“The acquisition will unite two of the world’s leading companies in high-performance computing (HPC). Together, NVIDIA’s computing platform and Mellanox’s interconnects power over 250 of the world’s TOP500 supercomputers and have as customers every major cloud service provider and computer maker.”
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Why this is a Good Move for Nvidia
Combining these two firms will no doubt give Nvidia the best offering in the supercomputing market. Hopefully, this will give them more power in negotiating contracts that will lead to higher profits.
Another good reason for Nvidia to buy Mellanox is the simple fact that it’s a growing company in a great industry. The firm grew sales 26% in 2018 on 69% gross margins. However, Nvidia is paying quite the premium for the stock, at 50 times current earnings.
Lastly, Nvidia is in dire need of some growth at the moment. Q4 sales were down 24% because of a huge slowing in demand for cryptocurrency chips and big data center contracts. Mellanox will help reverse this trend and make Nvidia more integrated into the entire computing market. If I was a shareholder of either company I would be applauding this acquisition news.
Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed.