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Nvidia preparing to abandon $40 billion ARM deal

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Yahoo Finance's Dan Howley discusses Nvidia walking away from its $40 billion ARM acquisition deal, the company's take on the metaverse, and what to expect from Microsoft's first earnings report since announcing their deal to acquire Activision-Blizzard.

Video transcript

[MUSIC PLAYING]

- Well, shares of NVIDIA are down about 5% in the session on a day when we've seen tech names down broadly here. This coming on the back of a Bloomberg report that the chip maker has reportedly made plans to quietly walk away from that $40 billion deal to acquire Arm. Let's bring in Yahoo Finance's Dan Howley.

And Dan, you know I can't say that, I mean, most analysts would say they're probably not surprised. This was largely not expected to go through because of the regulatory hurdles that they've faced. What does it mean in terms of the broader outlook for the company?

DAN HOWLEY: Yeah, wild. I mean, really, this $40 billion deal for Arm has kind of been dead for a while. Now we're getting this report from Bloomberg saying that yeah, NVIDIA is just kind of going to scuttle it, and they're going to go their separate ways. I think the big thing here is that if the deal had gone through, it would have completely blown up the balance of power in the chip industry,

NVIDIA said they would have kept Arm, which is basically kind of a Switzerland of the chip industry. They make designs for chips. And then companies ranging from Apple to Google to Qualcomm end up using those designs, NVIDIA one of them as well, to build out their own chips. So that's where you get Apple's M1 processor or the new chips from Google or Qualcomm Snapdragon chips. They're all Arm-based chips, NVIDIA's as well to some degree when it comes to their older CPUs.

But as far as NVIDIA goes itself, without this kind of deal, yes, they would have had intimate access to Arm's inner workings and a better understanding of how they could build out their own CPUs. But it really doesn't hurt NVIDIA that much, as far as the business itself goes. This doesn't mean that they're not going to have access to any CPUs. They framed it as being able to build up Arm's ability to push forward in the development of processors and chip designs.

But for NVIDIA itself, this is not really a blow, necessarily. I think this was something that was kind of built into the price of the stock, the idea that this was not going to go through. You saw that the FTC had sued back in December to block the deal. And at that point, NVIDIA shares had gone up slightly. So it really isn't necessarily a detriment.

I think, more or less, what we're just going to see here, according to the article at least, is Arm trying to go public on its own, which is surprising that it hasn't done to this point just because of how powerful it is and SoftBank, obviously, the owner of Arm. So, overall, NVIDIA is still going to be riding high on AI, on graphics processors, on the ability to help kind of form the metaverse.

Their kind of take on the metaverse, by the way, slightly different than what we're seeing from the likes of Meta. They're using it kind of as a utilitarian method to do things like train AIs for self-driving cars or help industries set up things like where to lay out cell towers. So really kind of a smarter way, an industrious way of using the metaverse.

So they have plenty of runway in front of them. And look, graphics cards need to be upgraded regularly because they start to get a little slower and slower every year. So it's not like they're not going to have customers from the consumer side and the industry side going to them constantly.

- Dan, while we have you, from the metaverse to the microverse if you will, and Microsoft. I don't know if it works, totally. We'll workshop it a little bit there. But--

DAN HOWLEY: We'll give it to you.

- --ultimately, this company is set to report earnings after the bell today. Walk us through some of the expectations.

DAN HOWLEY: That's right. This is Microsoft's first earnings since they announced their blockbuster deal to purchase Activision Blizzard. And for the company's quarter, this is their cue, too, by the way, of their fiscal 2022. So don't get confused when you start seeing those headlines roll across. But revenue we're expected to see for the quarter is $50.9 billion. That's versus the 43.1 billion they had in Q2 2021. Earnings per share expected to come in at 2.31 versus 2.03.

And what we always like to look at is their Intelligent Cloud and their productivity and business processes. That's where their cloud kind of offerings lie, their subscription services for Microsoft 365 as well as Azure. For Intelligent Cloud, we're expecting 18.3 billion on the quarter versus 14.6 billion. So that would be a nice bump if they hit that. And then for productivity and business processes, it would be 15.9 billion versus 13.4 billion in the prior year.

And as I said, this is their first call since they made that announcement they're going to acquire Activision Blizzard. That still has to go through some regulatory hurdles. We're not sure if it'll definitely go through just because of the atmosphere that we've seen coming out of Washington with regards to big tech. But out of all the companies, Microsoft has managed to keep its nose clean, especially since that 2000 antitrust suit. So we'll see if that has any impact on this deal going forward. And hopefully, we get some commentary from Satya Nadella.

- Yeah. The report after the bell could be a major barometer for setting up some of the other earnings reports to come from cloud players later on this earnings season as well. Yahoo Finance's own Dan Howley joining us today in this afternoon. Thanks so much, Dan, for the breakdown there.

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