Nvidia solves Intel’s smallest problems

By Robert Cyran

It might seem a rare win for Intel INTC that it can reasonably be compared to Apple AAPL. Problem is, it’s the Apple of 28 years ago, not today’s juggernaut. On Thursday, chipmaker Nvidia NVDA announced a $5 billion investment in rival Intel’s shares. It resembles a long-ago deal sealed between Microsoft MSFT and its then-ailing fruit-themed nemesis. In both cases, a troubled firm gets cash, while the dominant partner gains political goodwill for cheap. What’s missing this time around is a path to an iPod-like resurgence.

Apple was on death’s door in 1997. Steve Jobs was back, but the company was hemorrhaging money. Microsoft’s injection of $150 million, and an agreement to support its Office software on Macs, gave the company enough time and certainty to right the ship. Microsoft did equally well. Apple continued to provide a fig-leaf of competition, helping the firm then led by Bill Gates survive antitrust lawsuits.

At $4.4 trillion, Nvidia today is the world’s most valuable company, thanks to chips that are essential for training artificial intelligence. Trade frictions between the United States and China, however, threaten its global dominance. The company said that sales in the current quarter could rise by $5 billion if geopolitical tensions, in part spurred by U.S. export controls, subside. A regulator in the People’s Republic, meanwhile, has told firms to stop buying Nvidia chips, the Financial Times reported.

Investing in Intel might at least keep Uncle Sam sweet. The White House has strained to revive the chipmaker, the best hope for keeping cutting-edge semiconductor fabrication onshore. Nvidia has helped out with a sum that, while chunky, amounts to just 19 days’ worth of projected free cash flow this year, according to LSEG data.

The companies will also develop products marrying their technology. Intel could use the help. Analysts foresee it burning $7 billion of cash this year amid heavy spending to regain manufacturing supremacy. Touted data center chip designs with Nvidia might stem share losses in what was once Intel’s most crucial business, where sales this year are projected to be flat from a decade ago. That explains the roughly 30% rise in the company’s stock price on Thursday.

While today’s deal rhymes, there’s one big difference. Apple was flush with breakthrough product ideas, from brightly-colored iMacs to the smash-hit iPod and the world-changing iPhone. Intel is getting an Nvidia-charged boost for its traditional products, but a true AI moonshot is still wanting. Worse, it needs success first: its manufacturing push only works financially if it gains sufficient scale. Money helps, but that’s perhaps its smallest problem.

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CONTEXT NEWS

Nvidia announced on September 18 that it will invest $5 billion in Intel’s common stock at $23.28 per share. The two will form a partnership under which they will develop custom chips for both data centers and personal computers that integrate both companies’ technology.

In August, SoftBank agreed to buy $2 billion of Intel stock at $23 a share.

In 1997, Microsoft agreed to invest $150 million in Apple. Microsoft agreed to support its Office software suite on Apple’s platform for five years, while Apple agreed to adopt Microsoft’s Internet Explorer browser.