US regulators are taking legal action to block Nvidia’s $40bn takeover of Arm, the Cambridge-based chip designer, over competition concerns.

The deal would give Nvidia, one of the world’s biggest chip makers, control over the technology and designs that rivals rely on to develop their own products, the Federal Trade Commission said.

Holly Vedova of the FTC said it was “suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies”.

“Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals,” she added.

Nvidia said: “As we move into this next step in the FTC process, we will continue to work to demonstrate that this transaction will benefit the industry and promote competition.”

Arm declined to comment.

Arm, which was bought in 2016 by Japan’s Softbank, does not manufacture chips but creates and licences designs to other companies including Apple, Qualcomm and Samsung as well as Nvidia.

These companies, in turn, use its designs in chips now found in a huge range of devices.

California-based Nvidia is one of the world’s biggest technology companies, worth $800bn.

The deal was first struck in September 2020 and Nvidia had hoped to close it in early 2022.

The takeover also faced an in-depth investigation by the UK’s Competition and Markets Authority and another in the European Union that is not due to report until March.

Nvidia warned last week that it could risk losing a $1.25bn (£950m) downpayment if the takeover falls through.