Another round of rumors has hit the media about Nvidia (NASDAQ: NVDA) buying AMD (NYSE: AMD). Barron’s quotes American Technology Research as saying a deal is possible. The reasoning seems simple enough. “The Intel/AMD road-map of integration of the CPU/GPU could pose a risk to Nvidia, and buying AMD propels Nvidia into a formidable competitor for Intel with the upside coming from Huang’s ability to re-architect AMD’s design.”
Dream on. Nvidia has a market cap of just under $15 billion. Its stock is down about 25% this year. Buying a loser like AMD would push its price so low that shareholders would storm the company’s headquarters. Nvidia is about to announce earnings. A weak forecast could further eviscerate the shares.
In its last quarter, NVDA has operating income of $248 million on revenue of $1.116 billion. The company had a gross margin of 46% in that period. NVDA has a clean balance sheet with over $1 billion in cash.
Over at AMD the company sports a market cap of $3.8 billion, which makes a deal by Nvidia affordable. That is until Wall St. looks at the $5 billion in long-term debt on the balance sheet. AMD had revenue of $1.77 billion and an operating breakeven before write-offs of $1.6 billion for impaired assets.
Nvidia shareholders have a nice company. AMD is a boat anchor.
Douglas A. McIntyre
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