Intel’s stock jumped 30% early Thursday as it announced a $5 billion investment from Nvidia along with plans to collaborate on new technology for data centers and PCs.
The deal is a tremendous boost for Intel because Nvidia’s chips dominate the market for artificial intelligence, a rapidly growing sector but one where Intel has no advanced products. Thursday’s agreement ties Intel’s future to the chip industry’s most successful and most valuable business and to Nvidia’s founder and CEO, Jensen Huang.
Money is helpful, and having Jensen’s blessing is priceless,” Bernstein Research analyst Stacy Rasgon wrote in a note to clients.
The two companies will collaborate on chips using Intel’s proprietary x86 architecture and special-purpose “chiplets” built with Nvidia’s designs.
“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,” Huang wrote in a written statement Thursday. “Together, we will expand our ecosystems and lay the foundation for the next era of computing.”
Huang grew up in Aloha and graduated from Oregon State University, though he now lives near Nvidia’s headquarters in Silicon Valley.
The deal does not appear to commit Nvidia to using Intel’s factories for Nvidia’s own products, at least not immediately. But the $5 billion investment will give Nvidia added incentive to promote Intel’s slow-developing contract manufacturing business.
For Nvidia, the financial commitment is relatively small because it has a market value of more than $4 trillion. But Nvidia has no factories of its own and relies on Taiwan Semiconductor Manufacturing Co. to make its chips. In the long run, Nvidia would like to have an alternative available and Thursday’s deal could be a step in that direction.
Nvidia will buy Intel stock at $23.28 a share, below Wednesday’s closing price of $24.90. That will dilute the value of investors’ existing stake in Intel but the deal is already paying off for them, with the stock climbing $7.53 in premarket trading to $32.43.
It also boosts the value of the $8.9 billion the federal government invested in Intel last month, and $2 billion the Japanese investment firm SoftBank invested in Intel earlier in August.
Combined, Intel has now had a quick infusion of $16 billion in recent weeks — plus $3.3 billion by completing the sale this month of a majority stake in Intel’s programmable chip business, Altera. That means Intel won’t face immediate financial pressure.
Intel still faces enormous challenges, though, to develop more advanced computer chips and attract clients for its contract manufacturing business. Having Nvidia along to help could make those tasks more achievable.