Nvidia Invests $5 Bn in Intel, Seals Chip Partnership to Strengthen AI and Semiconductor Edge

Just weeks after the White House negotiated an unprecedented agreement for the U.S. government to acquire a significant share in the company, Nvidia announced on September 18 that it will invest $5 billion in Intel (INTC.O) and create a new tab, lending its weight to the faltering U.S. chipmaker. Once fresh shares are issued to finalise the deal, the investment will immediately make Nvidia one of Intel’s major shareholders, holding at least 4% of the business.

After years of unsuccessful turnaround attempts at the renowned American manufacturer, Nvidia’s assistance opened up a new avenue for Intel and caused a 30% increase in the struggling chipmaker’s shares in premarket trading. In March, the business, which was formerly the leader of the semiconductor industry and was said to have placed the “silicon” in Silicon Valley, named Lip-Bu Tan as its new CEO.

 American elected officials, including President Trump, criticised him and demanded his resignation because of his ties to China. After a hastily scheduled meeting in Washington, Intel made the unprecedented decision to grant the US a 10% share in the business.

What Nvidia and Intel Partnership will Offer?

Although the agreement calls for Intel and Nvidia to work together to build PC and data centre chips, it is important to note that Intel’s contract manufacturing company—referred to as a “foundry” in the chip industry—will not be producing chips for Nvidia.

According to the majority of analysts, Intel’s foundry would eventually need to acquire a major client like Nvidia, Apple, Qualcomm, or Broadcom in order to survive. In a statement, Nvidia, whose essential processors are driving a global surge in artificial intelligence, said it would buy Intel common stock for $23.28 a share, which is marginally less than the $24.90 closing price of Intel shares on 17 September.

That is more expensive than the $20.47 per share price that the US government paid last month for an unprecedented 10% interest in Intel. Taiwan’s TSMC may be at risk as a result of the agreement. Currently, TSMC produces the flagship CPUs for Nvidia, a business that the most valuable corporation in the world may eventually expand to Intel. With Nvidia’s support, AMD, which rivals Intel for data centre chip supply, also stands to lose.

What this Deal Means to Intel?

After announcing a $2 billion investment from Softbank and receiving $5.7 billion from the U.S. government, Intel has a rising capital reserve that this deal adds to. At a Deutsche Bank conference last month, Intel’s chief financial officer, David Zinsner, assured investors that the company was in a “good cash position” and would not need much more funding until it saw substantial demand for 14A, a next-generation manufacturing process that it anticipates investing heavily in developing.

CEO Tan has promised to keep Intel’s operations minimal and only increase production capacity when demand requires it. As part of the planned agreement, Nvidia would package its AI chips, or GPUs, with specialised data centre central processors designed by Intel. The Intel and Nvidia CPUs will be able to communicate more quickly thanks to a proprietary Nvidia technique. Since numerous chips must be connected in order for them to function as a single unit in order to process enormous volumes of data, fast connectivity is a crucial differentiation in the AI business.

Since Nvidia’s top-selling AI servers with those fast links are currently only available with Nvidia’s own CPUs, the agreement would place Intel on an even playing field and allow it to profit from each Nvidia server.