FTC Chair Lina Khan takes victory lap on blocking Nvidia-Arm merger

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Federal Trade Commission Chair Lina Khan speaks during the New York Times annual DealBook Summit in New York City on Nov. 29, 2023.

Michael M. Santiago | Getty Images

Federal Trade Commission Chair Lina Khan cited the surging stock prices of Nvidia and Arm as an example of how blocking mergers can lead to increased innovation.

Speaking at a Bloomberg and Y Combinator conference on Tuesday, Khan said that when the $40 billion merger was called off due to “significant regulatory challenges” in 2022, it forced both companies to innovate and create new products.

The remarks suggest Khan and the FTC see the blocked Nvidia deal, which Khan said would have been “the largest semiconductor chip merger in history,” as an example of a successful antitrust action that doesn’t hamper companies from pursuing financial success or embracing new technologies such as artificial intelligence.

“The trajectories of both companies in the wake of this action has illustrated how organic growth and competition can spur firms to further innovate in ways that benefit the business and public alike,” Khan said at the conference.

The evidence, Khan said, is in the company stock prices.

“Not only has Nvidia remained the leading AI chipmaker in the AI chip arms race, with a surging stock valuation, but Arm ended up going public and has a forward earnings multiple that is more than double Nvidia’s,” Khan said.

In September 2020, Nvidia announced plans to acquire Arm for $40 billion in cash and stock. Both firms hailed the deal as a way to create the premier computing company for the “age of AI.”

But the acquisition quickly met resistance from regulators in the U.S., Europe and Asia. Arm’s core technology, its instruction set architecture, is used by companies such as Apple, Google and Qualcomm to build processors. Arm is often described as a “neutral supplier” that doesn’t compete with its customers.

Those companies and regulators worried that Nvidia could control access to Arm’s architecture, giving it the power to foreclose access to a key input needed to make their chips. Nvidia said it would invest in Arm and allow other companies continued use of Arm’s chip designs, preserving the company’s licensing model.

The FTC sued in late 2021 to block the merger, and in combination with pressure with other regulatory challenges, the deal collapsed less than three months later.

“Our team determined that giving one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips would be bad for competition and hamstring innovation of next-generation technology,” Khan said Tuesday.

Nvidia shares have rocketed since the deal was called off as the company has established a leading position in AI chips. Nvidia’s value has nearly tripled mostly on the strength of sales of its AI chips for servers such as the A100 and H100. It’s now worth just under $2 trillion, the third-most valuable U.S. company.

Arm stock has more than doubled since the company went public in August 2023, although SoftBank still owns 90% of the company’s shares. Investors have bid up its share price in the hope that its technology will be essential for developing and deploying AI software.

Arm is now worth more than $143 billion, and, as Khan noted, investors have given the company a high earnings multiple, suggesting that they see strong growth in the company’s future.

A representative for Nvidia declined to comment. A representative for Arm didn’t respond to CNBC’s request for comment.

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