Nvidia to Buy Mellanox for $6.9 Billion in Data Center Push

Nvidia agreed to buy chipmaker Mellanox for $6.9 billion, gaining expertise to help it push into the growing market for data center components, according to Bloomberg.

The $125-a-share cash offer for Mellanox is a 14 percent premium to Friday’s close of $109.38. But traders may not be sold on the idea that the deal will go through, with Mellanox trading up 8.6 percent to $118.62, still short of the bid from Nvidia. That gap may reflect concern that chip deals have foundered on regulatory approval delays and blocks amid a trade dispute between China and the U.S.

Nvidia’s biggest-ever acquisition is aimed at accelerating momentum for one of CEO Jensen Huang’s most successful initiatives. The company’s founder built a multi-billion-dollar business in under three years by persuading owners of data centers that his graphics chips are the right solution for processing the increasingly large amounts of information needed for artificial intelligence work, such as image recognition. “The data center is more important than ever,“ Huang said in an interview. “This combination allows us to innovate faster.“

Nvidia is said to have won a bidding process for the American-Israeli company, which makes chips used to speed the flow of information across computer servers, beating out rivals including Intel. Mellanox’s market value, now at about $5.9 billion, started to run up last year when activist investors took stakes and talk that it was up for sale emerged. Shares of the company have risen 66 percent from their October trough and 18 percent this year before the deal was announced.

The acquisition process was ‘‘very competitive,’’ Huang said. Once complete, the combination is expected to be immediately accretive to profit and free cash flow, Nvidia said. The deal may signal a resumption of consolidation in the $470 billion semiconductor industry, which has been reshaped over the past five years as companies combined to gain scale while battling rising costs and shrinking customer lists.