Nvidia (NVDA.O) announced on Thursday that it plans to invest $5 billion in Intel (INTC.O), demonstrating its support for the struggling U.S. chipmaker just weeks after the White House facilitated a remarkable deal for the U.S. government to acquire a significant stake in the company.

The investment will immediately position Nvidia as one of Intel’s largest shareholders, granting it approximately 4% or more of the company following the issuance of new shares to finalize the agreement.
Nvidia’s backing signifies a fresh opportunity for Intel after years of unsuccessful turnaround efforts at the renowned U.S. manufacturer, resulting in a 30% surge in the troubled chipmaker’s shares during premarket trading.
Once regarded as the leader of the chip industry that claimed to have put the ‘silicon’ in Silicon Valley, Intel appointed a new CEO, Lip-Bu Tan, in March.

He faced criticism from U.S. elected officials, including President Trump, who urged his resignation due to concerns regarding his ties to China.
This prompted a hastily arranged meeting in Washington, culminating in Intel’s unusual agreement to grant the United States a 10% stake in the company.

The agreement outlines a plan for Intel and Nvidia to collaborate on the development of PC and data center chips, but notably excludes Intel’s contract manufacturing division, known as a ‘foundry’ in the chip sector, from producing chips for Nvidia.
Most analysts contend that for Intel’s foundry to thrive, it will ultimately need to secure a major client such as Nvidia, Apple,

Qualcomm, or Broadcom.

Nvidia, whose essential chips are driving a global artificial intelligence surge, stated in a release that it would acquire Intel common stock at $23.28 per share, a price slightly lower than the $24.90 at which Intel shares closed on Wednesday.

Nonetheless, this amount exceeds the $20.47 price per share that the U.S. government paid for a remarkable 10% stake in Intel last month.

“This indicates Nvidia’s intention to somewhat diversify its investments within the U.S. and also to earn favor with the U.S. government,” stated Chris Beauchamp, chief market analyst at IG Group in London.
“While it does not resolve the larger issue Nvidia faces with China, it does help maintain its favorable standing with the U.S. government.”
The agreement poses a potential threat to Taiwan’s TSMC (2330.TW), which currently produces Nvidia’s leading processors, a business that the world’s most valuable company might eventually expand to Intel.

AMD (AMD.O), which competes with Intel in supplying chips to data centers, is also likely to suffer due to Nvidia’s support.
Nvidia’s shares increased by over 3%. In contrast, AMD fell nearly 4%, and U.S.-listed shares of TSMC dropped by 2%. TSMC and AMD did not respond immediately to a request for comment.
This deal contributes to the growing capital reserves that Intel has amassed just 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, informed investors at a Deutsche Bank conference last month that the company is in a “strong cash position” and will not need much additional capital until it experiences significant demand for 14A, a next-generation manufacturing process that it plans to invest heavily in developing.
CEO Tan has committed to streamlining Intel’s operations and expanding factory capacity only when there is corresponding demand.

SPEEDY LINKS

Under the agreement announced on Thursday, Intel intends to create custom central processors for data centers that Nvidia will integrate with its AI chips, referred to as GPUs. A unique Nvidia technology will enable the Intel and Nvidia chips to communicate at previously unattainable speeds.
Speedy connections are a crucial differentiator in the AI sector, as numerous chips need to be interconnected to function collectively in processing vast quantities of data.

Currently, Nvidia’s top-selling AI servers equipped with these fast connections are exclusively available with Nvidia’s own chips, but this new agreement will level the playing field for Intel, allowing it to profit from each Nvidia server.
The collaboration between Nvidia and Intel could pose a significant competitive threat to AMD, which is working on its own AI servers, as well as Broadcom (AVGO.O), which also possesses chip-to-chip connection technology and assists companies like Google in developing AI chips.

“Any endorsement from NVIDIA will inherently make Intel’s stock more appealing, as it suggests Nvidia recognizes Intel’s value,” stated Peter Andersen, founder of Andersen Capital Management in Boston.
Broadcom has not yet responded to a request for comment.

In the consumer market, Nvidia will supply Intel with a custom graphics chip that Intel can bundle with its PC central processors, utilizing the same high-speed connections, potentially providing an advantage over competitors like AMD.
Although Intel’s x86 computing architecture has lost some ground in both data centers and PCs to chips utilizing technology from Arm Ltd, it still maintains a majority market share.

“This landmark partnership closely integrates Nvidia’s AI and accelerated computing framework with Intel’s CPUs and the extensive x86 ecosystem — a combination of two premier platforms,” stated Nvidia CEO Jensen Huang. “Together, we will enhance our ecosystems and establish the groundwork for the forthcoming era of computing.”

The two firms did not reveal the financial specifics of their technical partnership but indicated they would produce “multiple generations” of upcoming products. Officials from Nvidia and Intel characterized the collaboration as a commercial agreement where they will exchange chips to develop products, clarifying that there is no licensing aspect involved in the arrangement.
“For Nvidia, the financial implications are minimal, but the political benefits are significant: this strategy aligns with U.S. policy and may facilitate the easing of restrictions on advanced chip sales to China,” remarked Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Nvidia has faced challenges in selling its H20 chips in China, as the company attempts to balance the demands from both Washington and Beijing. In mid-August, Trump orchestrated a deal that allowed Nvidia to obtain licenses for selling H20 chips to China in return for a 15% share of those sales, yet Nvidia has stated it has not shipped any H20 chips to China.
The companies refrained from providing a timeline for when the first collaborative products would be available but mentioned that their product strategies prior to the joint agreement remain unchanged.

In recent years, Nvidia has ventured into both the PC central processor sector and the data center central processor market. At the same time, Intel has attempted to market several AI chips that rival Nvidia and has announced plans to create an AI data center server to compete with Nvidia.