(Image credit: railway fx / Shutterstock)

Unconfirmed reports surfaced yesterday that Nvidia had outbid Intel to purchase Mellanox, and this morning those rumors were confirmed. Nvidia announced that it had reached an agreement with Mellanox to purchase the networking giant for $6.9 Billion.

Nvidia will purchase Mellanox for $125 per share in cash and expects the deal to complete by the end of 2019. The $6.9 billion winning bid represents a 14% premium over Mellanox's latest valuation.

Nvidia's purchase comes as the company looks to expand deeper into the data center market while reducing its reliance on the gaming market. The market for gaming GPUs plunged recently as the cryptocurrency mining craze fizzled due to falling valuations, leaving Nvidia with excess inventory that has impacted the company's revenues heavily.

Last quarter Nvidia suffered a surprising 45% year-over-year loss in gaming GPU revenue, but some of those losses were offset by the company's booming sales to data centers. Nvidia's data center GPUs are the current de facto choice for AI training workloads, and new lower-cost Tesla T4 models for AI inference workloads have enjoyed brisk uptake. Nvidia's data center sales accounted for 31% of its revenues last quarter, which is a healthy increase from the 19% of quarterly revenue the prior year.

The addition of Mellanox, the leading producer of Ethernet and InfiniBand products for the data center, will help the company further diversify its portfolio. According to Nvidia, the company's graphics cards and Mellanox's interconnects power over 250 of the supercomputers in the TOP500 supercomputer list currently.

Mellanox recently came under fire from activist investor group Starboard Value, which criticized the company for passing over a buyout offer from Marvell. Mellanox appeased the group by appointing three new members to its 11-member board.

“We’re excited to unite NVIDIA’s accelerated computing platform with Mellanox’s world-renowned accelerated networking platform under one roof to create next-generation datacenter-scale computing solutions. I am particularly thrilled to work closely with the visionary leaders of Mellanox and their amazing people to invent the computers of tomorrow,” said Nvidia CEO Jensen Huang of the deal, which is expected to close by the of 2019.

Want to comment on this story? Let us know what you think in the Tom's Hardware Forums.