Nvidia (NASDAQ: NVDA) jumped as much as 9.5% on Monday after the chipmaker announced it has agreed to buy the U.K.-based chip design firm Arm Holdings from SoftBank Group for around $40 billion in cash, stock, and future considerations.
The deal marks the biggest acquisition in the history of the semiconductor industry.
Arm is at the heart of nearly every smartphone sold, from Apple’s iPhones to Samsung’s Galaxy devices. Beyond that, Arm technology is used in many smaller chips integrated into all kinds of computer systems and devices with more than 180 billion chips with its processor cores and other components.
“They’re in everything, and they power computers of all different types of shapes from the fastest supercomputer in the world, to smart watches and smart thermostats,” said Nvidia CEO Jensen Huang.
But even as the splashy deal drove Nvidia shares higher, Laffer Tengler Investments’ Nancy Tengler said there are two cheaper stocks in the semiconductor space that may be a better bet now.
“We are actually overweight the chip group and have been for quite some time,” Tengler said. “We’re playing the space with names like Broadcom (NASDAQ: AVGO) and Texas Instruments (NASDAQ: TXN) – companies that have been growing their dividends are more attractive on a valuation basis.”
Texas Instruments offers a yield of 2.56%, while Broadcom has a yield of 3.54%, and both stocks have upped their dividends multiple times over the last five years.
“Texas Instruments, just as an example, really showed leadership during the COVID crisis and built inventory so there would be no supply chain disruptions for their underlying customers,” Tengler said. “So we like companies like that that have a capital allocation strategy math’s friendly to shareholders.”
Broadcom reported earnings earlier this month, posting adjusted earnings per share of $5.40 on revenue of $5.82 billion, compared to analysts’ estimates for earnings per share of $5.22 on revenue of $5.77 billion.
UBS analyst Timothy Arcuri wrote in a note to clients following the earnings report that the quarter was a strong one for Broadcom and may have addressed investors’ worries over questions such as the company’s data center sales.
“Against some investor concerns heading into the report, Broadcom delivered on all fronts while also offering some solid visibility into the wireless segment for the [January quarter],” Arcuri wrote. “As we have said for many months in our Apple coverage, iPhone 5G procurement remains solid and biased higher but Broadcom also has several other strong product cycles especially in cloud/networking.”
RBC analyst Mitch Steves also said Broadcom’s most recent quarter was a strong one, and said the company’s results were better than his team had expected. Following the report, Steves boosted his price target on the stock from $400 to $410 – 12% higher than the price as of this writing.
“Broadcom reported a solid July quarter and October quarter guide that was better than expected,” Steves wrote in a note to clients. “We think results were solid across the board given weaker expectations particularly as it relates to Networking, which came in better than expected.”