Nvidia Solves 4 of Intel’s 5 Big Problems. The Final One Is a Doozy.

Intel CEO Lip-Bu Tan and Nvidia CEO Jensen Huang in a photo posted to X by Tan on Thursday. (Lip-Bu Tan / X)

Both rivals and partners, Nvidia and Intel made a deal this week that included an Intel share sale to Nvidia for $5 billion and partnerships around PC and data center chips. Investors are reading the tea leaves and see more: that Nvidia will come in and save Intel’s struggling manufacturing business.

The deal solves four problems for Intel, but it doesn’t address the root of Intel’s woes: its manufacturing technology, which has fallen behind Taiwan Semiconductor Manufacturing.

The first thing Intel gets is more cash that it needs for capital expenditures. The company has put significant delays on planned construction, curtailing capex in 2025 by 25% in the first half of the year. The capex is a necessary ingredient for Intel’s plans to catch up to Taiwan Semi, though the main issues are still technical.

So far this year, Intel has received $5.7 billion from the U.S, Department of Commerce for shares priced at $20.74. That gave investors confidence that the U.S. government wouldn’t let Intel fail, putting its finger on the scale. Soon after, SoftBank added $2 billion at $23 per share, and now Nvidia is paying $5 billion at $23.28.

All told, Intel is issuing 576 million new shares for $12.7 billion, diluting shareholders by 12%. But they brought something more important than cash: the implicit backing of powerful players.

And that brings the second thing Intel gets from Nvidia: investor confidence. While these deals have been made at a discount to Intel’s then market price, the shares have soared anyway. This is about investors deciding that Intel isn’t going anywhere. The U.S. government, Nvidia, and SoftBank are now keenly interested in Intel’s survival. For investors, that’s made betting on Intel’s cheap stock seem like a good idea.

The third thing Intel gets from Nvidia is a better PC chip, which will now have an Intel CPU and an Nvidia GPU, with Nvidia’s high-speed connection pulling it all together. Those chips will also offer better gaming and on-device AI, key marketing points in the PC world.

And fourth, the partnership helps Intel in the data center, where the company’s CPUs long dominated inside servers. But AI demand has changed the equation, with hundreds of billions of dollars in new investment going primarily to Nvidia’s GPUs used for AI computing.

At first, the common setup for an AI server was two Intel CPUs linked to eight Nvidia GPUs. But then Nvidia began making its own CPU based around technology from Arm Holdings, not the x86 platform used by Intel and Advanced Micro Devices. That move effectively cut out Intel entirely from the AI data center.

In a March interview, Arm’s senior vice president of infrastructure, Mohamed Awad, predicted that Arm data center CPUs would raise their market share to 50% by the end of the year, up from 15% in 2024. Those gains have largely come at Intel’s expense.

Using a joint design with Nvidia, Intel’s CPUs could be back in the AI server mix, and Intel could recover some of its lost business.

All of this is good for Intel, but probably not $28 billion good, the market value generated on Thursday from the stock’s 23% price jump.

Jordan Klein, a tech and media sector specialist at Mizuho, thinks investors should avoid the stock for now. “I can see momentum chasing INTC for [the] short term but to me this is not some rerating of stock or major guide up for growth for them,” he wrote to clients today. “Personally, I am not yet ready to sell other high quality semis to start chasing INTC up 25%+ today.” Among those higher quality names, Klein cited Nvidia, Taiwan Semiconductor, Broadcom and memory chip makers.

Intel’s biggest problem remains its foundry business, a moonshot program that began four years ago, in which Intel hoped to make advanced chips for designers across the world. The idea was to give Apple, Samsung, Nvidia, and others an alternative to Taiwan Semiconductor Manufacturer. So far, it has been a bust.

Intel still lacks a big outside customer for its foundry, and its manufacturing remains behind Taiwan Semi. In the company’s recent quarterly earnings call, Intel’s new CEO, Lip-Bu Tan, said that the costs associated with the next generation of technology couldn’t be supported by Intel’s sales alone.

Intel needs outside customers to keep the business moving forward. That’s one thing Nvidia hasn’t promised. It could still happen, but it’s far from guaranteed.

Tan and Nvidia CEO Jensen Huang were asked several times about that possibility during a press conference on Thursday. The CEOs shied away from the issue in several responses. But Huang did use the opportunity to heap praise on Taiwan Semi’s manufacturing, calling it “magic.”

Intel’s executives—and shareholders—should be feeling better about the company this week, but no one is calling the company magical. At least not yet.

Write to Adam Levine at adam.levine@barrons.com