Intel (NDQ:INTC): Its been outmuscled by Nvidia, but its rival just became an investor by buying a US$5bn stake

Intel (NDQ:INTC) has a peculiar shareholder register that has included the US government (which bought 10% in August), Japan’s SoftBank and now Nvidia. Yes, as the saying goes…if you can’t beat them join them.

The companies will work to co-develop chips for PCs and data centres, chips using Nvidia’s graphic technology and hardware. And Nvidia is investing US$5bn for a stake of roughly 4%.

This is welcome news for Intel investors, but does it mean its future is secure? And why would Nvidia invest in an ailing rival? The answer to the latter is easy…it is because of CPUs and x86.

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Overview of Intel and its secret sauce

Intel is one of the world’s biggest semiconductor companies making various components powering computers, servers and other electronic devices. These include microprocessors (CPUs), chipsets and integrated graphics. Intel is also expanding into new tech fields like AI accelerators, 5G, and autonomous driving solutions. But of course, it is a competitive jungle out there.

Intel was founded in 1968 by Robert Noyce and Gordon Moore. First it focused on memory chips but switched to microprocessors in the 1970s, the first of which was the Intel 4004. As PCs became mainstream, it dominated the PC Processors market powering IBM devices.

These days things are tough as it is facing intense competition with chip giants from TSMC to Nvidia. It has been investing heavily to retain its leadership, but has it been to avail? Yes in the sense it is still a major player but it has lost some ground.

Intel still has two secret sauces…

…and this is why Nvidia wanted to ‘get in’. The first of these are CPUs (Central Processing Units) which work as the ‘brains’ of computers, responsible for executing instructions and running software. CPUs include the Core and Xeon Series as well as lower-power and lower-cost CPUs (Atom, Pentium and Celeron).

The other is the x86 system – a CPU instruction set architecture. It defines the set of machine instructions the CPU understands and executes. It is the foundation for most personal computers (including modern Apple and Windows computers). x86 first emerged in the 1970s and it has been improved over time with innovations in speed, efficiency and power consumption. But over time Intel has lost ground to Nvidia.

Lost ground

You see, Nvidia’s specialty GPUs were first designed to accelerate graphics rendering in video games. And so initially, GPUs were a supplementary product to CPUs. But over time, GPUs have become essential for parallel computing tasks—especially in fields like AI, machine learning, scientific simulations, and cryptocurrency mining.

Unlike CPUs, which are optimised for sequential, general-purpose computing, GPUs are designed for massively parallel tasks, with thousands of smaller cores working simultaneously. GPUs came to be preferred for AI and data centres and Intel’s attempts to develop GPUs have been slow and less successful. Investors have been worried and sent shares down over 60% in the last 4 and a half years. Until last week…

Working together rather than fighting

The rival that had been suffocating Intel is now an investor and business partner…subject to regulatory approval. Then again, it is the Trump administration that is an investor in the company – it bought shares to bolster US chipmaking. And Nvidia’s CEO Jensen Huang said while the White House ‘had no involvement in this partnership’, it,’ would have been very supportive’.

Intel will build chips integrating Nvidia’s technology some to be used by Intel’s own customers, others to be used by Nvidia in its own AI infrastructure. It is easy to forget that Nvidia has had problems in penetrating the broader PC and small server markets where Intel has a larger ecosystem of relationships. So Nvidia has reasons for its own in partnering with Intel, and being a shareholder shows it is ‘all in’ on not fighting with the company and working with it.

This likely spells trouble for other semiconductor majors, particularly the key competitor AMD, which won’t have chips attached to Nvidia’s flagship products and had just been starting to gain ground in the CPU and GPU markets.

Conclusion

Intel investors should breathe easier, but shouldn’t be complacent. The company has a major leg up, don’t get us wrong – we aren’t suggesting anything to the contrary. But the AI boom is just beginning and it’ll be very competitive for chip makers.