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

SAN FRANCISCO (Reuters) - Nvidia on Thursday said it will 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 U.S. government to take a massive stake in the company.

The stake instantly will make Nvidia one of Intel's largest shareholders, giving it roughly 4% or more 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 at the famed U.S. manufacturer failed to pay off, and it sent shares soaring 30% in premarket action.

The company – once the chip industry’s flagbearer that claimed to put the "silicon" in Silicon Valley – appointed a new CEO, Lip-Bu Tan, in March. He came under fire from U.S. elected officials including U.S. President 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 United States a 10% stake in the company. 

The 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 eventually win a large customer such as Nvidia, Apple, Qualcomm or Broadcom.     

Nvidia, whose must-have chips are powering a global artificial intelligence boom, said in a statement 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, that 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.

"It's a reflection of Nvidia looking to diversify to an extent its investment within the US and as well to gain some brownie points with the U.S. government," said Chris Beauchamp, chief market analyst at IG Group in London.

The pact represents a potential risk to Taiwan’s TSMC. TSMC currently manufactures Nvidia’s flagship processors, business that 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. 

Shares of Nvidia rose more than 3%. AMD slipped nearly 4%, while U.S.-listed shares of TSMC slid 2%. TSMC and AMD didn’t immediately respond to a comment request

Tan has vowed to make Intel’s operation lean and build factory capacity only when there’s demand to match it.  

The deal adds to a growing reserve of capital that Intel has accumulated weeks after it announced a $2 billion investment from Softbank and received $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 that it expects to invest heavily in building.        

SPEEDY LINKS 

Under the deal announced Thursday, Intel is planning to design custom data center central processors that Nvidia will 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.      

Those 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.

At present, Nvidia's best-selling AI servers with those 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 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.  

"Anything that NVIDIA decides to endorse just by association will make that stock of Intel appear attractive because it implies that Nvidia sees value in Intel," said Peter Andersen, founder of Andersen Capital Management in Boston. 

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 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 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 and said there was no licensing component to the deal.  

The companies declined to give a date for when the first joint products will come to market but said that their product plans prior to the joint deal have not changed.  

Nvidia in recent years has entered both the PC central processor market and the data center central processor market. Intel meanwhile 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; Editing by Sam Holmes)