Computer graphics chip company Nvidia said it plans to buy Britain's Arm Holdings for $40 billion, in a merger of two leading chipmakers.

Santa Clara, California-based Nvidia and Arm's parent company, Japanese technology giant SoftBank, announced the deal Sunday.

Nvidia is best known for its graphics processing chips, while Arm is renowned as an innovator in the "Internet of Things" — its technology is used in the vast majority of smartphones, for example. Arm centers its business on intellectual property, especially in mobile computing, rather than chip manufacturing, for which it relies on p...