By Stephen Nellis, Max A. Cherney, Jeffrey Dastin and Karen Freifeld
SAN FRANCISCO/WASHINGTON (Reuters) – Nvidia said on Thursday it would invest $5 billion in Intel, throwing its heft behind the struggling U.S. chipmaker just weeks after the White House engineered an extraordinary deal for the federal government to take a massive stake in the company.
Nvidia’s support offers Intel a new chance after years of turnaround efforts failed to pay off, and triggered a 23% jump in the U.S. chip manufacturer’s shares. The stake will make Nvidia one of Intel’s largest shareholders, giving it roughly 4% of the company after new shares are issued.
Intel – once the chip industry’s flag bearer that claimed to put the “silicon” in Silicon Valley – appointed a new CEO, Lip-Bu Tan, in March. He quickly came under fire from U.S. President Donald Trump, who called his resignation due to concerns about his connections with China. This led to a swiftly arranged meeting in Washington that ended with Intel’s unusual arrangement to give the U.S. a 10% stake in the company.
Nvidia CEO Jensen Huang told reporters on a call on Thursday that the Trump administration had not been involved in the partnership deal but would have been supportive. Huang was seen with Trump and other business leaders during the U.S. president’s state visit to the United Kingdom on Thursday.
This new pact includes a plan for the two companies to jointly develop PC and data center chips, but crucially, will not involve Intel’s contract manufacturing business – or foundry – making computing chips for Nvidia. Intel’s foundry business will, however, supply the central processors and advanced packaging for the joint products. Huang said his company was continuing to evaluate Intel’s foundry technology and had been working with the rival for nearly a year.
Most analysts believe that for Intel’s foundry to survive, it would need to win a large customer such as Nvidia, Apple, Qualcomm or Broadcom.
“This may be the first step of an acquisition or breakup of the company (Intel) among U.S. chip makers though it is entirely possible the company will remain a shadow of its former self but will survive,” said Nancy Tengler, CEO of Laffer Tengler Investments, which holds Nvidia stock.
Nvidia, whose must-have chips are powering a global artificial intelligence boom, said it would pay $23.28 per share for Intel common stock, slightly below the $24.90 Wednesday closing price but higher than the $20.47 price the U.S. government paid. Nvidia shares were up 3.8% on Thursday.
The companies did not disclose the financial terms of their collaboration but said they would make “multiple generations” of future products.
The deal adds to Intel’s growing reserve of capital, following a $2 billion investment from Softbank and the $5.7 billion investment from the U.S. government.
CEO Tan has vowed to make Intel’s operations lean and build factory capacity only when there is demand to match it.
“This is a massive game-changer for Intel and effectively resets its position of AI-laggard into a cog in future AI infrastructure,” said Gadjo Sevilla, senior AI and tech analyst at eMarketer.
RISKS TO COMPETITORS
The pact represents a potential risk to Taiwan’s TSMC. TSMC currently manufactures Nvidia’s flagship processors, a business the world’s most valuable company could one day extend to Intel. AMD, which competes with Intel for supplying chips to data centers, also stands to lose thanks to Nvidia’s backing.
TSMC declined comment. An AMD spokesperson said the company continued to deliver high-performance products that power everything from PCs to data centers, and would keep driving market share growth with its AI-forward strategy.
“AMD has been seizing market share in desktops and laptops for quite some time and this will help Nvidia out against its closest domestic peers, but I think TSMC may have the bigger risk to its operation over the long term,” said David Wagner, portfolio manager at Aptus Capital Advisors.
Under the terms of the deal, Intel will design custom data-center central processors Nvidia plans to package with its AI chips, known as GPUs. A proprietary Nvidia technology will let the Intel and Nvidia chips communicate at higher speeds than before.
Speedy links are a key differentiator in the AI market because many chips must be strung together to act as one to chew through massive amounts of data. Currently, Nvidia’s best-selling AI servers with those links are only available using Nvidia’s own chips; this deal would put Intel on equal footing, giving it a chance to make money off each Nvidia server.
The combined Nvidia-Intel chips could also challenge Broadcom, which has chip-to-chip connection technology and helps companies such as Alphabet’s Google develop AI chips. Broadcom did not respond to a request for comment.
AMD shares were down 1.3%, while Broadcom shares fell 0.5%.
The companies did not say when the first joint products would come to market, but said their product plans prior to the deal had not changed.
(Reporting by Stephen Nellis, Jeffery Dastin and Max Cherney in San Francisco, Deborah Sophia in Bangalore and Karen Freifeld in Washington; Editing by David Gaffen, Sam Holmes, Anil D’Silva, Mark Porter and Matthew Lewis)
