Nvidia announced on Thursday that it will invest $5 billion in Intel, supporting the struggling U.S. chip foundry, but did not secure a crucial manufacturing deal for Intel.
The agreement, which also involves a plan for Intel and Nvidia to jointly develop PC and data center chips, poses a potential threat to Taiwan’s TSMC. Currently, TSMC manufactures Nvidia’s flagship processors, business that could eventually extend to Intel. AMD, which competes with Intel in supplying chips to data centers, might lose out due to Nvidia’s support.
Intel shares surged 12% in premarket trading, while Nvidia shares rose 2%.
Nvidia, whose essential chips are driving a global artificial intelligence boom, stated it will pay $23.28 per share for Intel common stock, a price slightly below the $24.90 at which Intel shares closed on Wednesday.
However, this price is higher than the $20.47 per share that the United States government paid for a significant 10% stake it acquired in Intel last month.
Nvidia will become one of Intel’s largest shareholders, likely owning 4% or more of the company after new shares are issued to finalize the deal.
Nvidia’s backing provides a new opportunity for Intel after years of turnaround efforts at the renowned U.S. manufacturer failed to succeed.
The company, once a leader in the chip industry, appointed a new CEO, Lip-Bu Tan, in March. Tan has committed to making Intel’s operations more efficient and building factory capacity only when there is demand to support it.
Crucially, the deal will not involve Intel’s contract manufacturing business, known as a “foundry” in the chip industry, producing chips for Nvidia. Most analysts believe that for Intel’s foundry to survive, it will eventually need to secure a large customer such as Nvidia, Apple, Qualcomm, or Broadcom.
The deal adds to a growing reserve of capital that Intel has accumulated weeks after announcing a $2 billion investment from Softbank and receiving $5.7 billion from the U.S. government.
David Zinsner, Intel’s chief financial officer, told investors at a Deutsche Bank conference last month that the company was in a “good cash position” and would not require much more capital until it saw significant demand for 14A, a next-generation manufacturing process it plans to heavily invest in building.
Under the deal announced Thursday, Intel plans to design custom data center central processors that Nvidia will package with its AI chips, known as GPUs. A proprietary Nvidia technology will enable the Intel and Nvidia chips to communicate at higher speeds than before.
These speedy links are a key differentiator in the AI market because many chips must be combined to process massive amounts of data.
Currently, Nvidia’s best-selling AI servers with these speedy links are only available using Nvidia’s own chips, but the deal would now put Intel on equal footing, giving it a chance to profit from each Nvidia server.
The combined Nvidia-Intel chips could pose 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 like Google develop AI chips.
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 holds a majority market share.
“This historic collaboration tightly couples Nvidia’s AI and accelerated computing stack with Intel’s CPUs and the vast x86 ecosystem—a fusion of two world-class platforms,” Nvidia CEO Jensen Huang said in a press release. “Together, we will expand our ecosystems and lay the foundation for the next era of computing.”
The two companies did not disclose financial terms of their technical collaboration but said they would develop “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 and stated there was no licensing component to the deal.
The companies declined to give a date for when the first joint products will hit the market but said their product plans before the joint deal have not changed.
In recent years, Nvidia has entered both the PC central processor market and the data center central processor market. Meanwhile, Intel has tried to sell several AI chips that compete with Nvidia and has announced plans to develop an AI data center server to compete with Nvidia.
