Dear Reader,
It was a deal that was never going to happen…
But I don’t fault NVIDIA for at least giving it a shot.
NVIDIA announced its acquisition of semiconductor technology company ARM back in September of 2020 for $40 billion. And after a 16-month battle to get the deal approved, it has officially fallen apart.
A successful acquisition of ARM would have put NVIDIA in an incredibly powerful position in the semiconductor industry. ARM’s place in the semiconductor industry is that of designing semiconductors and semiconductor software. Its business model is to license out that technology to other semiconductor manufacturers.
ARM’s strategy had been to design its technology for lower power consumption and devices that operate at the edge of networks. ARM was rapidly adopted for applications in the automotive industry, smartphones, tablets, smartwatches, gaming consoles, internet of things (IOT) applications… basically all of the high-growth applications that semiconductor manufacturers have been focused on.
It was ahead of its time and built products in advance of market needs, which is why it became such a valuable company. So valuable, in fact, that Japan’s more recognizable tech conglomerate, Softbank, stepped up and paid $32 billion for the company back in 2016.
It was an astounding price at the time, but that’s what it took for ARM’s management to accept the deal. Four years later, NVIDIA made its offer for $40 billion, which would have allowed Softbank to eke out a 25% return for the duration it held the asset.
The problem was that if NVIDIA had ARM, it would basically have a chokehold on the entire semiconductor industry.
ARM’s technology is licensed by just about every major semiconductor company on the planet… its tech is that important. And it has a remarkable patent portfolio around its technology. What an incredible position to be in.
All of this is why the deal wasn’t going to happen.
NVIDIA’s timing was terrible. Had it gone after ARM back in 2017 or 2018, it may have gotten lucky. It just might have snuck in the deal without raising too many hairs with regulators. Intel, Qualcomm, or even Texas Instruments might have appeared to be larger anti-competitive threats as an owner of ARM at the time.
But NVIDIA jumped in around its all-time highs (at the time) around $132 a share after an epic run from $24 back in 2016 – a run that I predicted would happen. And we know what happened next…
From $132 a share, NVIDIA skyrocketed to a peak of $333 a share and a company worth more than half a trillion dollars – literally the most valuable semiconductor company in the world.
ARM would have ultimately made NVIDIA a trillion-dollar company and the gatekeeper to the entire industry. That’s why the deal didn’t go through.
And it hurt Softbank. The thing is, the $40 billion offer wasn’t just $40 billion. It was actually $12 billion in cash plus $21.5 billion in NVIDIA stock, plus an additional $5 billion in cash or stock. Ouch!!!
Why? Because of NVIDIA’s rise in share price, that $40 billion offer back in 2020 became worth $80 billion based on December’s share price, turning a measly 25% return over four years into a 150% return. This would have been a $48 billion windfall for Softbank… a windfall it sorely needed.
But there is a silver lining.
ARM is clearly worth a whole lot more today than it was back in 2016, and only the very largest tech companies could possibly afford such an acquisition. The major semiconductor companies aren’t going to try because they know the deal won’t get approved due to antitrust concerns.
That leaves only one logical path forward – an IPO.
Softbank needs a big win in its venture fund – ARM is exactly that. It would be prudent to take ARM public as soon as possible.
The second half of this year would be the best window, but I suspect the IPO will be pushed to the first quarter of next year. Either way, this is one of the best assets in the entire semiconductor industry and one that I look forward to seeing go public.
Before we turn to today’s topics, I’d like to talk about the current state of the markets…
As investors know, we’ve had a handful of rocky days since the start of the year. Volatility is up, and markets have tumbled, sending many stocks into the red.
Understandably, this has many people concerned.
And I want to help guide all my readers through the current economic climate. To that end, I’m preparing a special briefing for anyone who’s worried about the state of the markets… or who’s not sure whether to buy… sell… or hold stocks right now.
On February 16, at 8 p.m. ET, I’ll share my thoughts on what we’re seeing… and also reveal one big technology trend that could send some tiny stocks soaring in 2022.
To reserve your spot, simply go right here to RSVP.
A start-up called Emerge just announced that it’s launching its first commercial product, the Emerge Home system. And it’s all about making metaverses more immersive for consumers.
This is a sign of things to come in the space…
The Emerge Home system is a tabletop device about the size of a 13-inch laptop. It connects to metaverses and allows users to control their experience in a metaverse with hand motions.
The Emerge system also allows users to “feel” their interactions inside a metaverse. The device emits ultrasonic waves in response to certain actions. These waves provide a sense of “touch” that corresponds to what’s happening in the virtual world.
Here’s a visual:
Emerge Home
Source: Emerge
Here we can see a user moving their hands over the Emerge Home system to interact with a metaverse. And the “ultrasonic waves” represent how the person can feel a sense of pressure by performing certain actions.
The experience of “feeling” ultrasonic waves is pretty wild. It is very tactile; it feels like an invisible force that you can interact with as you move your hands and fingers.
So the idea here is to help consumers interact within a metaverse in a way that makes the experience more immersive. I think there’s a large demand for this that’s only going to grow. As such, I’m curious to see how the Emerge system is adopted.
That said, I don’t think this will be the winning approach.
The Emerge system tethers users to the physical location of the device itself. That’s just too limiting.
To me, haptic gloves are a more compelling approach that can solve the same problem without restricting users to such a small physical space. And haptic gloves would likely be even more immersive.
Users would “feel” the sensations regardless of how they were holding their hands in a far more complete way. Haptic gloves can be designed to exert pressure on any place on the hands or fingers, and can create vibrations, compression, and even sensations like heat.
Still, I think Emerge is smart to launch this product. Even if it doesn’t become the go-to device for metaverse users, it could very well find some niche applications in the industry.
Bigger picture, I’m very bullish on the metaverse space as we move into 2022. The technology is advancing rapidly, and I think we’ll see more haptic products released later this year as well.
The bottom line is that there will be some incredible investment opportunities that come as metaverses continue to build out and commercialize. To learn more about my top recommendations, go right here for the latest.
And we’ll continue to track developments very closely in these pages.
Air mobility company Joby Aviation just asked the Federal Aviation Administration (FAA) for permission to test its electric vertical takeoff and landing (eVTOL) aircraft in the San Francisco Bay Area.
Approval would enable the company to run test flights over the Golden Gate Bridge and Alcatraz. And that would bring Joby one step closer to launching its first commercial air taxi service.
As a reminder, Joby Aviation took over Uber Elevate. That was Uber’s air taxi unit. The company is working on a four-person craft that takes off and lands like a helicopter but flies like an airplane. Here’s a look:
Joby Aviation Aircraft
Source: Joby Aviation
Here we can see that Joby’s eVTOL has six different blades that provide the lift to take off and land vertically. And then the blades rotate to propel it forward.
Joby’s aircraft has broken several records in the eVTOL space:
It’s had the longest flight, which was 155 miles. It’s also achieved 205 miles per hour in the air, the fastest any eVTOL has traveled up to this point.
And Joby’s aircraft have also flown at 7,000 feet. That’s the highest altitude an eVTOL has ever reached.
I’m very excited about all the progress Joby has made since we checked in on the company last year.
So the next step is to get FAA approval for test flights in the Bay Area. That could lead to Joby becoming an FAA-certified air carrier as early as this year.
That’s the next milestone. And it would keep Joby on track to achieving its big goal – a commercial air taxi service by 2024. That’s less than two years out now.
At first, a pilot will captain all flights. But in time, Joby will roll out its autonomous flying technology. The end goal is a fully autonomous air taxi service.
And if we remember, Uber invested $75 million in Joby as part of its Uber Elevate divestment. As such, Uber will likely partner with Joby on its eVTOL air taxi service when it’s ready for a commercial launch.
That’s huge because 93 million people use Uber’s platform today. Joby would have access to a massive customer base right from the start.
Joby is worth keeping a close eye on. It’s still a couple of years until revenue, but this is the kind of company that can really run as it nears its own commercial launch.
We will wrap up today with a big early stage funding round that caught my eye.
A crypto-focused company called CoinTracker just closed on an impressive $100 million Series A round. That put the company’s valuation at $1.3 billion, making it a unicorn overnight.
This is a sign that investing in digital assets has gone mainstream…
CoinTracker provides tax filing software for people who invest in cryptocurrencies. It’s very much like the digital asset industry’s version of TurboTax.
It’s important for those of us who invest in digital assets to keep in mind that the Internal Revenue Service (IRS) has strict rules in place for the industry.
Any time we trade one digital asset for another, the IRS considers it a taxable event. That’s true even if we move directly between two digital assets without using national fiat currency like U.S. dollars.
For example, if we buy a non-fungible token (NFT) on OpenSea using Ethereum (ETH), the IRS says that we owe capital gains taxes if ETH went up in value since we bought it.
The same holds true if we use Bitcoin (BTC) to buy a smaller cryptocurrency on an exchange. Even though we didn’t sell for dollars, the IRS says we owe capital gains taxes if BTC appreciated since we owned it.
This tax structure is highly contentious in the industry as it applies the same rules used for equities to digital assets (basically).
This is not thought to be the best approach… and it makes keeping up with our cost basis for every trade very important even though it can be nearly impossible to do so. Doing this manually is an incredibly painful process.
That’s where CoinTracker comes in. Its software simplifies the calculation of gains and losses across a digital asset portfolio.
And the fact that CoinTracker just became a unicorn overnight shows us just how much interest there is in this asset class. We wouldn’t be talking about crypto tax software if the asset class was not going mainstream.
CoinTracker, and a small number of companies like it, are in line to become the next TurboTax. It’s likely that some will get acquired, and hopefully at least one will go public.
Bigger picture, we’ll see the digital asset space continue to grow and mature in 2022.
So I’d encourage all investors to build at least a small position in assets related to NFTs, blockchain technology, and cryptocurrency. Recently, I held a special event to discuss some of the best opportunities I see available to investors.
But the replay of this event will go offline tomorrow night at midnight. So if you haven’t yet had a chance to watch, please go right here to tune in before it’s too late.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
