Nvidia agreed to purchase Arm for up to $40 billion in cash and stock, the companies said Sunday night. This mammoth deal in the chip industry is expected to bolster AI and GPU powerhouse Nvidia’s chip portfolio, even as it’s sure to attract antitrust attention.

Nvidia will pay Softbank, the company’s current owner, a total of $21.5 billion in Nvidia stock and $12 billion in cash, including $2 billion payable at signing. Nvidia will also issue $1.5 billion in equity to Arm employees. It may also pay Softbank up to $5 billion in cash or stock if Arm meets specific financial performance targets—bringing the final purchase price up to $40 billion.

The deal has been approved by the boards of all three companies—Arm, Nvidia and Softbank—though it’s subject to regulatory approval in China, the United Kingdom, the European Union and the United States.

“AI is the most powerful technology force of our time and has launched a new wave of computing,” said Jensen Huang, founder and chief executive of Nvidia, in a statement. “In the years ahead, trillions of computers running AI will create a new internet-of-things that is thousands of times larger than today’s internet-of-people. Our combination will create a company fabulously positioned for the age of AI.”

ARM plus Nvidia equals AI?

Nvidia, which sees itself as an AI company as much or more than a leading supplier of GPUs to the PC industry, said the combination of the two companies will accelerate the transition of artificial intelligence to the edge, where ARM-powered CPUs and sensors will navigate, control, and otherwise accelerate the flow of data among smart devices. 

The traditional roles of both companies are what makes the deal so potent. The transaction combines two of the leading names in the chip business: Nvidia, which dominates the standalone GPU business, and Arm, which designs the processors in virtually every smartphone on the market. Nvidia’s chips powered 80 percent of the standalone PC graphics card market in the second quarter of 2020, according to Jon Peddie Research.  Arm licenses its designs to companies like Apple, Samsung, and Qualcomm, which create their own derivatives based on Arm’s original designs. According to Nvidia, Arm has shipped 180 billion chips to date via its licensees.

Nvidia competes with Intel and AMD in the GPU market, though it holds a dominant share. Arm, however, has arguably little to no competition. Owning Arm will give Nvidia dominant control over the smartphone market, as well as an inside track on its own AI initiatives. 

It’s this aspect which will likely raise antitrust protests from other chip companies, including Apple and Qualcomm, as it will give Nvidia dominant market positions in two arguably unrelated chip industries.