The U.K. is considering blocking a takeover of Arm Ltd. by Nvidia Corp. due to potential risks to national security, according to people familiar with the discussions.

Nvidia, the biggest U.S. chip company by market capitalization, announced in September a $40 billion deal to acquire Arm — currently owned by Japanese conglomerate SoftBank Group Corp. — as part of a push to spread its reach in the surging market for semiconductors.