What's Next For Nvidia And Mellanox?

GPU inventor Nvidia Corporation (NVDA)  reached an agreement to acquire Israel-based Mellanox Technologies, Ltd. (MLNX), a supplier of smart interconnect solutions and services for servers and storage, for $125 per share.

Several more Street analysts have offered their take.

The Analysts

  • SunTrust Robinson Humphrey's William Stein maintains a Buy rating on Nvidia with a price target lifted from $195 to $210.
  • Morgan Stanley's Joseph Moore maintains at Equal-weight, unchanged $148 price target.
  • Bank of America's Vivek Arya maintains at Buy, unchanged $193 price target.
  • Tigress Financial Partners' Ivan Feinseth.
  • Rosenblatt's Hans Mosesmann.

Nvidia's stock closed Tuesday at $162.52 per share.

SunTrust: Defensive But Strategic Fit

If Nvidia didn't acquire Mellanox, Stein said a rival like Intel Corporation INTC 0.43% could have done so which would limit Nvidia's ability to continue collaborating with Mellanox. Nvidia's move to buy Mellanox looks defensive in nature but also makes strategic sense for three reasons.

  1. Nvidia and Mellanox play a prominent role in emerging data center technology so the combination of the two will create a stronger company that is better able to satisfy demand, the analyst wrote.
  2. Nvidia already resells Mellanox's products within its GDX-2 systems.
  3. Both companies worked together to create GPU Direct, a tool that lets engineers access memory across disparate GPUs more quickly.

Morgan Stanley: 'Interested' To See What's Next

Nvidia's acquisition will expand its exposure to the data center market and could prove to be "significantly" accretive, Moore said in a research report. Nvidia's true potential lies in its ability to combine high-speed networking products like Infiniband to drive more compute.

Nvidia needs to first show how it best maximizes its acquired assets although it is clear there are some advantages for the graphics portfolio by looking at the direction the Infiniband standard will go. In the meantime, the analyst will be "interested to see" what Nvidia will do to fully monetize the combined entity.

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