A major corporate acquisition could reshape the hardware that makes AI tick.

What’s new: U.S. processor giant Nvidia, the world’s leading vendor of the graphics processing units (GPUs) that perform calculations for deep learning, struck a deal to purchase UK chip designer Arm for $40 billion. The transaction faces regulatory approvals and other hurdles, but if it’s completed, it will be the biggest-ever acquisition in the chip industry and one of the biggest technology deals.

Deal drivers: Nvidia’s technology undergirds much of the cloud infrastructure for AI workloads, while Arm’s technology drives inference in 95 percent of smartphones.

  • Nvidia said it plans to integrate Arm’s energy-efficient designs with its data center chips.
  • It also aims to use the technology to spur the internet of things, a buzzword for devices like smart thermostats, doorbells, speakers, and industrial equipment that are expected to distribute intelligence throughout buildings and infrastructure.
  • Nvidia CEO Jensen Huang envisions trillions of AI-equipped devices enabling everything from autonomous heavy machinery to walk-through retail checkout.
  • Huang also plans to extend Arm’s licensing practices, which let any company lease its designs, to Nvidia’s GPUs and AI services.

Behind the news: Nvidia developed GPUs to process high-resolution video game graphics in 1999. Nearly a decade later researchers realized their potential for training deep learning models. Since then, the company’s value has multiplied tenfold.

Why it matters: By combining Arm’s energy efficiency with its growing presence in the cloud, Nvidia chips may be able to drive coming generations of multi-trillion parameter models.

Yes, but: Mergers are difficult to pull off, and international tie-ups of this scale especially so. Whether Nvidia can take full advantage of its new possession may remain unclear for a long time. Meanwhile, Arm co-founder Hermann Hauser is urging UK authorities to block the deal on the grounds that it would put Nvidia on the road to monopolizing the chip industry.

We’re thinking: Data centers increasingly require both CPUs to process traditional workloads and GPUs to process deep learning (with help from a CPU). Data center operators would appreciate a vendor that can supply CPUs and GPUs that interoperate smoothly. That’s one reason why CPU producers like Intel and AMD are expanding into GPUs, and why Nvidia wants to buy Arm.

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