Nvidia announced on Thursday that it would make a $5 billion investment in Intel, betting big on the U.S. chipmaker. This stake will make Nvidia one of Intel’s biggest shareholders, giving it roughly over 4% of the company after new shares are issued to complete the deal.
This comes during a challenging time for Intel, and might give it an opportunity to turn things around. The company has been facing trouble ever since its newly appointed CEO Lip-Bu Tan came under fire from U.S. elected officials, including President Donald Trump who called for him to resign over his connections with China. This was followed by a meeting in Washington, following which there was an agreement to give the U.S. government a 10% stake in the company.
Intel’s agreement with Nvidia includes plans to jointly develop personal computer and data center chips, but it will not involve Intel’s contract manufacturing business, known as a “foundry” in the chip industry, making chips for Nvidia. Analysts believe that for Intel’s foundry to survive, it will eventually have to win a large customer such as Nvidia, Apple, Qualcomm or Broadcom.
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Nvidia said in a statement that it would pay $23.28 per share for Intel common stock, a price slightly below the $24.90 at which Intel shares closed on Wednesday. This is higher than the $20.47 price per share that the United States government paid for an extraordinary 10% stake it took in Intel last month.
“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. Together, we will expand our ecosystems and lay the foundation for the next era of computing,” said Nvidia CEO Jensen Huang in a release. Meanwhile, Chris Beauchamp, chief market analyst at IG Group in London said, “It’s a reflection of Nvidia looking to diversify to an extent its investment within the U.S. and as well to gain some brownie points with the U.S. government.”
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“It doesn’t change the bigger problem which Nvidia is facing with China, but it keeps it in favor with the U.S. government,” Beauchamp added.
This deal might put Intel’s competitors TSMC and AMD at a disadvantage. Taiwan’s TSMC currently manufactures Nvidia’s flagship processors, a business the company could one day extend to Intel. AMD, which competes with Intel for supplying chips to data centers might also lose due to Nvidia’s backing.