One thing that got our attention from over the weekend was Nvidia’s deal to purchase chip designer Arm from SoftBank Group. The deal would create a chip powerhouse as Arm supplies chip technology that basically touches everything from cell phones to datacenters. Essentially, it is the most successful microprocessor architecture in the world. Nvidia is relatively diverse with a stranglehold on the graphic chip market, but also some fingers in A.I. and self-driving vehicle technology, to name a few.
Nvidia and the U.K.-based Arm are working together to build supercomputers for modeling both climate change predictions and nuclear weapons. Early reports are that this one caught the eye of antitrust regulators and could take 18 months to approve. In fact, CCS Insights stated that the deal might actually hurt Arm’s business in the end. The reason for this is due to Arm’s relationship with so many technology companies, it has basically become a white-label producer in the technology world, and this deal with Nvidia might force companies to look another direction.
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“An acquisition by Nvidia would be detrimental to Arm and its ecosystem,” CCS Insights’ Geoff Blaber said to Reuters. “Independence is critical to the ongoing success of Arm and once that is compromised, its value will start to erode.”
Nvidia has been stressing that Arm will remain independent, but I doubt China will care about a few press releases. If Arm has an American parent company, it might make those companies working with Arm less likely to close deals on the Mainland. South Korea is already concerned that Nvidia is a competitor in the self-driving space, and that Arm might jack up their prices to make the competition a little tougher. This kind of chatter is not going away.
Other reports noted that this deal would create a shift in the industry from Arm designs to RISC-V. If you are not familiar, RISC-V is a royalty-free architecture, open-source alternative started by academics at UC Berkeley, which now has more than 430 member companies like Western Digital and SiFive.
In other news, a busy week for Tech IPOs…Snowflake is certainly the most anticipated. Its data warehouse software assists companies in managing vast amounts of information in the cloud, and it could be worth about $24 billion if it goes public at $85 a share, the high end of its current range. Growth is all over this company… In the six months ending July 31, 2019, Snowflake’s revenue was $104.0 million. A year later, those two quarters generated revenues of $242.0 million, which is a YoY increase of 132.7%. Furthermore, the company’s gross margins have increased each year, now coming in at 61.6%. Still, is the company profitable? No way. It is burning cash at a pace of $50 million per quarter, bring Snowflake’s net margin to -58%.
Ok, before you totally walk away from this IPO…Let’s just revisit a few tech IPOs that had this level of hype (not as much, of course)…
- June 23, 2004 – Salesforce (IPO price: $3.95, today: $254.70)
- June 29, 2012 – ServiceNow (IPO price: $23.70, today: $487.41)
I think Snowflake has a chance to be competitive with big names like Oracle and Microsoft. I would not worry too much about the balance sheet right now…
Global shares are looking up. France’s CAC 40 gained 0.6% to 5,065.52, while Germany’s DAX added 0.4% to 13,255.97. Britain’s FTSE 100 picked up 0.3% to 6,049.61.
AGYS is a SaaS company for the hospitality industry, which obviously took a beating in March and still has not fully recovered. As tourists come back to places like casinos and hotels, we think this company can bounce back.