Are AMD and NVIDIA destined for a blessed union?

One analyst argues that a combination of two major rivals could create a …

Some Wall Street analysts can make a lot of sense, even when their ideas come from deep in left field.

Doug Freedman, a technology analyst with American Technology Research, sent out a client note today where he posited that NVIDIA might buy AMD. It's not as crazy as it sounds.

Some observers, Freedman included, think that NVIDIA chief Jen-Hsun Huang would make a great CEO for AMD. Hector Ruiz and his merry men have lost a lot of Street cred over the past couple of years through a series of product delays and financial shenanigans, overpromises, and underdelivery.

Huang has a fine track record of melding technologies from his own company and acquired competitors (think 3dfx here, which turned into the highly successful NV30 architecture). Just imagine what he could do with all of ATI's graphics and platform technologies, including direct access to the processor architecture and its design.

A combined AMD and NVIDIA would pose a threat to mighty Intel, says Freedman, "with the upside coming from Huang’s ability to rearchitect AMD's design."

With a $3.7 billion market cap and $3.1 billion in net debt, AMD wouldn't come cheap to its graphical rival. NVIDIA only has $1.85 billion in cash and equivalents on its balance sheet, though there is no debt on the books. The company has a very good credit rating and an attractively-priced stock that would make a part-stock, part-debt acquisition possible.

On the downside, EU and US regulators might not want to see ATI and NVIDIA under the same roof for antitrust reasons, and Ruiz hasn't burned his last bridges yet, in my opinion. AMD's problems aren't entirely his fault. If all you want is change at the top, COO Dirk Meyer has been groomed as Ruiz's successor for years, and he comes with a very strong technical background.

I wouldn't be shocked to see a bid for AMD in these merger-happy times (think MSFT-YHOO, XMSR-SIRI, AMZN-ADBL, and more). But if there is a buyout in the cards, IBM might be a more logical suitor for the chip maker, thanks to its deep blue pockets and longstanding process tech relationship with AMD.

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