Nvidia bets big on Intel with $5 billion stake, chip partnership

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SAN FRANCISCO (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.

The stake will instantly make Nvidia one of Intel’s largest shareholders, giving it roughly 4% of the company after new shares are issued to complete the deal. Nvidia’s support represents a new opening for Intel after years of turnaround efforts failed to pay off, and it triggered a jump in the U.S. manufacturer’s shares.

The company – 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. elected officials, including President Donald Trump, who called for him to resign due to concerns about his connections with China. That 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.

The new pact includes a plan for Intel and Nvidia to jointly develop PC and data center chips, but crucially will not involve Intel’s contract manufacturing business, known as a “foundry” in the chip industry, making chips for Nvidia. 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 .     

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.

The companies did not disclose the financial terms of their collaboration but said they would make “multiple generations” of future products. Nvidia and Intel officials described the collaboration as a commercial arrangement under which they will provide chips to one another to create products, with no licensing component.  

Nvidia has struggled to sell its H20 chips in China, with the company trying to navigate demands from Washington and Beijing at the same time. In mid-August, Trump engineered a deal that granted Nvidia licenses to sell H20 chips to China in exchange for a 15% cut of those sales, but Nvidia has said it has not sent any H20 chips to China.

While the deal does not do much to help Nvidia’s issues in China, analysts noted that it carries political upside in the U.S. Nvidia CEO Jensen Huang was seen among other business leaders with Trump during the U.S. president’s state visit to the United Kingdom on Thursday.

“This move aligns with U.S. policy and could help ease restrictions on selling advanced chips to China,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. 

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’s demand to match it.   

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. 

Intel shares were up about 26% at open and were trading at $31.33 in early trading. AMD shares were down 4.6%, while Broadcom shares rose 1.3%. Nvidia shares were up 2%.

TSMC and AMD did not immediately respond to a request for comment.

“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 provide a major competitive challenge to AMD, which is developing its own AI servers, and Broadcom, which also has chip-to-chip connection technology and helps companies such as Google develop AI chips. Broadcom did not immediately respond to a request for comment.

For consumer markets, Nvidia will provide Intel with a custom graphics chip that Intel can package with its PC central processors with the same speedy links, potentially giving it an edge against rivals such as AMD.  

While Intel’s x86 computing architecture has lost ground in both data centers and PCs to chips with technology from Arm Ltd, it still has a majority market share.  

The companies did not say when the first joint products would come to market, but said that their product plans prior to the joint deal had not changed.  

Nvidia in recent years has entered both the PC central processor market and the data center central processor market. Intel has tried to sell several AI chips that compete with Nvidia and has said it plans to develop an AI data center server that would compete with Nvidia.

(Reporting by Stephen Nellis, Jeffery Dastin and Max Cherney in San Francisco and Deborah Sophia in Bangalore; Editing by Sam Holmes, Anil D’Silva and Mark Porter)