A Special Note From Michael: Before today’s chat, I wanted to take a moment to let you know that Operation Warp-Speed, the unprecedented drive to develop a COVID-19 vaccine, is entering its final leg. Just this week on September 23, a new company started the final stage of vaccine trials. Others began as far back as July and August. Now, what we call the new “super-vaccine” concept has huge potential for fighting disease even beyond COVID-19. Click here to learn how it could also be a huge moneymaking opportunity for you.
Just two weeks ago, a deal was struck that has the potential to totally reshape a key tech sector. The most important tech company that nobody has ever heard of is joining forces with one of the fastest growing firms in the sector.
To get an idea of just how important this unknown player is, you probably use their tech every day before you even have breakfast in the device you use to set your alarm, and the internet router you use to check the morning news.
The brand defining devices made by Apple Inc. (AAPL) all rely on this company’s tech. That’s why this deal is going to change the entire tech sector.
How the tech works is complicated, but how they can make you money isn’t.
At $40 billion dollars, it’s the biggest deal of its kind to ever be struck, and it could mean a fortune for the investors who get involved before it gets completely priced in…
The Idea Factory
Now then, a $40 billion merger is nothing to sneeze at. Fact is, it ranks as the largest merger on record for the vital chip industry.
I’m a big backer of this move. See, this bolt on merger put together two legendary semiconductor firms.
It gives the combined company even more shots on goal and promise to greatly improve profit margins.
Based in Cambridge, England, Arm is a fairly unknown company outside of the tech world. But their reach is universal.
Because while Arm doesn’t make any chips themselves, they design them and license them to other companies.
As these Arm chips are famously power-efficient, they are being used in all kinds of indispensable tech. The CPU in every iPhone, iPad, Apple Watch, and Apple TV is based on tech licensed from Arm.
So is almost every Android smartphone, WiFi router, cable modem, smart TV, and car infotainment system in the world.
Apple Inc. (AAPL) is even implementing Arm-based designs in its laptop and desktop computers.
The company now buying Arm in the $40 billion deal is none other than Nvidia Corp. (NVDA), long the leaders in the graphic card (GPU) space for computer gaming.
Its ultra-fast cards are extremely robust. They’ve powered the firm’s move into artificial intelligence (AI), self-driving cars like Tesla Inc.’s (TSLA), and virtual reality (VR), all fields that require similar calculations to computer graphics.
See, Intel’s CPUs are the latest iteration of a long line of processors designed to compute one thing at a time. They’ve gotten a lot quicker over time, of course, so they can jump quickly from one task to another.
But the focus on one computation at a time, in sequence, just doesn’t work for advanced computer graphics, AI, VR, and many other uses.
For example, the brains of a self-driving car like a Tesla have to be analyzing data from several different sensors all at once.
Avoiding the curb on your right is no good if it means the car ignores the front sensor saying that it’s about to hit something else.
Computing in parallel is exactly what Nvidia’s GPUs excel at. It’s what’s made them so powerful for AI and other uses.
If your car uses has collision avoidance, adaptive cruise-control, or lane keeping functions, chances are it’s using a GPU to power it.
By merging with Arm, Nvidia is taking three huge strides forward at once.
Arm CPUs are small, efficient, and everywhere. Infusing them with Nvidia’s AI computing know-how will make the combined company a leader in the fields of AI, robotics, and the Internet of Things.
On the other side of the computing spectrum, you have data centers and cloud servers. Today, the vast majority of them run on Intel CPUs. But as the cloud gets larger and larger, the pressure to make more efficient servers only gets higher.
Some data centers already use Nvidia chips as add-ons, for AI computing and other specialized applications. The merger gives Nvidia the opportunity to create all-in-one solutions for servers, challenging Intel’s dominance in data centers and the cloud.
Another boon is that Arm has very high profit margins. This comes from the fact that the firm designs chips, but doesn’t make them itself. That’s going to be a great addition to Nvidia’s bottom line.
And unlike Nvidia’s chips, which have very specialized uses in limited but profitable kinds of devices, Arm’s chips are device-agnostic. They can be and are used in anything from smart kitchen appliances to space satellites.
So this merger opens up huge new markets for Nvidia’s chips.
Now, I’ve long been a fan of Nvidia, even before February of 2019. But even just since then, the firm’s stock has returned more than double what I projected.
This year, Nvidia is expected to grow its earnings per share by 57%. That’d be a huge number for other companies in a regular year.
But this is in 2020, in the middle of the worst pandemic in over a century.
If after the merger with Arm, Nvidia can average just half that, the company could still double in just 2.5 years.
Even apart, Nvidia and Arm were exactly the kind of companies that prove what I’ve been saying for a long time: the road to wealth is paved with technology.
Together, the sky’s the limit for these firms – and for your portfolio.
Cheers and good investing,
Michael A. Robinson