Nvidia Inc’s (NASDAQ:NVDA) proposed US$40bn of UK tech star ARM Holdings is to face an investigation over potential national security issues, the government has announced.

Oliver Dowden, the UK culture secretary, said today he has told the Competition and Markets Authority (CMA) to start a formal probe into the deal.

Cambridge-based chip designer Arm is one of the jewels in the UK technology crown, with its IP licensed to hundreds of manufacturers to power mobile ph9ones, laptops, tablets and increasingly artificial intelligence applications, where US group Nvidia is keen to grow.

Dowden said the CMA would prepare a report by the end of July covering matters relating to competition, jurisdiction and a summary of national security issues.

“We want to support our thriving UK tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this.”

The CMA has said already it was looking at whether the deal would give Arm to raise price prices or reduce the quality of services to Nvidia’s rivals if it went ahead.

Herman Hauser, one of Arm’s co-founders, has called for the deal to be blocked saying it would create the next tech monopoly alongside Google, Facebook and Amazon and be a disaster for the UK, Europe and the tech industry

In September, when the deal was announced, Hargreaves Lansdown’s Nicholas Hyett said “While Nvidia is best known for its gaming graphics chips and Arm for its smartphone chips, this deal is being predicated on artificial intelligence – an area where Nvidia has expertise but which is really in its infancy.

“By drawing on Arm’s huge pool of active devices, as well as its technical knowhow, Nvidia’s hoping it can crack a technology with potential applications in the cloud, smartphones, PCs, self-driving cars, robotics and the Internet of Things.”

Jensen Huang, founder and CEO of Nvidia, said AI is “the most powerful technology force of our time”. 

“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 holdings currently is owned by Japan’s Softbank, with the Japanese government set to get a 10% stake in Nvidia if the deal goes head due to the cash and share structure.