Shares of Nvidia surged on Monday and have continued to trend positively on Tuesday morning after the announcement of a $6.9 billion deal to acquire the Israeli networking and computing leader.
Still, the deal was noted for its anomalous nature in Nvidia's history and its hefty price tag,
"The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world's datacenters," Nvidia CEO Jensen Huang said of the deal. "Addressing this demand will require holistic architectures that connect vast numbers of fast computing nodes over intelligent networking fabrics to form a giant datacenter-scale compute engine."
Analysts largely concurred, noting that the deal essentially covers the needs of the GPU giant after a period in the wilderness for the stock.
"The strategic rationale, increased importance of connectivity and bandwidth, strengthening Nvidia's ability to provide datacenter-scale computing across the full stack for next generation high performance computing and AI workloads, essentially matches our prior thoughts," Bernstein analyst Stacy Rasgon commented.
The move is also synergistic in the sense that it creates strength in data center, a key driver in the secular shift toward cloud computing among many of the same clients both companies already serve.
"We believe that there will be opportunities to cross-sell and enhance our broader solution set over time given each company's technology assets and customer bases in high-performance computing, enterprise and hyperscale," said CFO Colette Kress while discussing Nvidia and Mellanox's customer relationships during a conference call.
Overall, the deal is indicative of the Jensen Huang-led company's shift toward next-generation technology as adoption of cloud, AI, and robotics ramps up, according to ROBO Global Director of Research Jeremie Capron.
"We think Nvidia is among the best in class semiconductor companies," he told Real Money, adding companies such as Microchip Technology (MCHP) and Xilinx (XLNX) as other key companies ROBO owns as the fourth industrial revolution progresses.
Capron explained that Nvidia is uniquely positioned to capitalize on major shifts in technology trends, much more so than Intel Corp. (INTC) , a company it reportedly beat out in the bidding war for Mellanox.
Essentially, as secular shifts are ahead, the market appears to be pricing the growth and value companies according to their ability to capitalize on the road ahead. Nvidia would clearly fall in the former camp while Intel occupies the latter.
"Datacenter is accelerating much faster than in years past," he said. "Everything Nvidia does, such as gaming and automotive, are really secondary to the addressable opportunity in data center."