Nvidia and Intel Forge Billion-Dollar Partnership: What Does This Mean for the Chip Industry?

A new $5 billion investment by Nvidia in Intel initially caused significant reactions among investors. Some market participants feared increased competition for Arm and Advanced Micro Devices (AMD). However, these initial concerns have now subsided, although the exact significance of the deal is still being discussed. After the announcement of the cooperation, which also includes the joint development of AI chips, Arm's stock fell by 7%. AMD briefly dropped by almost 6% but largely recovered from the losses. Wall Street analysts signal that the partnership may have less impact than originally anticipated. Bank of America experts stated on Friday that they see only a "limited short-term impact" on AMD and Arm. They reaffirmed their buy recommendations for both companies and pointed to potential benefits for suppliers of chip manufacturing equipment or design software. Since the announcement, shares of companies in these areas like ASML, Applied Materials, and Lam Research have risen. Bernstein analysts explained that the impact on AMD "might be less notable than we initially assumed." They see a positive development for equipment manufacturers like ASML. An open question remains whether the partnership between Intel and Nvidia could mean more business for Intel's chip factories that manufacture semiconductors for external companies. However, the deal did not include any commitments to use these foundries. Bernstein emphasized that Nvidia's actions could signal a preference for existing manufacturing partners like TSMC, as well as an attempt to gain favor with the US government, which now holds 10% of Intel. Nvidia and Intel spoke highly of TSMC, which is unsurprising, as neither can afford to have a troubled relationship with one of their most important suppliers. Even if Nvidia were to consider collaborating with Intel's manufacturing division, the cooperation with TSMC would likely continue without major losses for the Taiwanese leader. According to Bernstein, Nvidia is already in talks with Intel about their foundry capabilities, as are presumably many other companies. Everyone wants to tap Intel as an alternative source.