At first glance, the deal Intel (INTC -3.24%) just struck with Nvidia (NVDA 0.34%) looks kind of ordinary. Intel will include Nvidia's proprietary technology in custom chips for data center and PC processors. In return for this tech adoption and manufacturing service, Nvidia is investing $5 billion in Intel stock at $23.28 per share.
So Intel gets a firm chip-building client and $5 billion of extra cash, while Nvidia enters new target markets with Intel's custom chips. Just another day at the races, right?
But there's more to this seemingly simple agreement than meets the eye. This Nvidia relationship could spell the start of a game-changing turnaround for Intel. And it's not really about Nvidia's money.
Building the future is expensive, even for Intel
It's no secret that Intel is strapped for cash.
The company invested more than $25 billion in capital expenses for fiscal years 2022 and 2023, followed by $24.9 billion in 2024. Intel is building a world-class set of chip-making facilities, mostly on American soil. Creating a top-of-the-line chip foundry for the domestic semiconductor industry has been a top priority since the coronavirus pandemic, which unveiled weaknesses in the existing supply chain. Making, building, and testing every American microprocessor in China and Taiwan made sense once upon a time, but that operating model isn't so great anymore.
So Intel stepped up and answered the call. It's a long process with at least five more years of factory-building plans. The foundry project has added up to $108 billion of capital expenses (infrastructure construction) and $79 billion of research and development costs over the last five years. Even a global tech titan finds it hard to cough up that kind of cash.
Image source: Getty Images.
Uncle Sam and Nvidia open their wallets
The Trump administration recently reached out with an $8.9 billion investment in Intel stock, partly based on the Biden government's CHIPS Act. That's a start but not enough. Nvidia's additional investment supports Intel's infrastructure buildout, at the cost of approximately 3.4% stock dilution.
Now, Nvidia's deal isn't a complete game-changer. Neither is the government's Intel investment. The company already had about $21.2 billion of cash equivalents before these announcements, albeit precariously balanced against $44 billion of long-term debt.
I've seen worse, though. Most of Intel's debt was finalized before the inflation crisis of 2022, so the loan terms aren't terrible. Interest fees were only $95 million in the second quarter, which is a drop in the financial bucket next to $3.7 billion of R&D budgets and $3.6 billion in capital expenses.
The balance sheet is probably in better shape than you think.
Intel really wants Nvidia's secret sauce
So Intel could make do without these additional cash contributions if necessary -- but the Nvidia agreement comes with other helpful qualities.
Intel gets its hands on some of Nvidia's most prized chip features. Upcoming data center processors will be a hybrid of Nvidia's and Intel's best stuff, including Nvidia's high-speed NVLink data transfer links. Intel's chipsets for personal computers will have access to Nvidia's top-of-the-line GeForce RX series of graphics technology. The same tech also crunches AI-related numbers with authority, and Nvidia will also bring its industry-standard CUDA programming language to the table.
At the very least, the next few years won't be boring for Intel investors.
It should take a couple of years to bring these cross-linked chip features to market in actual products, but I sure can't wait to see them. This part of the Nvidia agreement could be exactly what Intel needed right now, as it must catch up to arch rivals Advanced Micro Devices and Qualcomm in many ways.
The turnaround story takes shape
After the deeply bearish market reaction to Intel's costly investments and struggling product development, the Nvidia-powered range of custom chips could spark a terrific turnaround. Investors sure expect something big -- Intel's stock jumped to a new 52-week high on the news, more than 71% above the recent multiyear lows.
I can't promise a smooth ride over the next several years, as Nvidia and Intel co-develop their new hybrid chips. Still, investors taking a chance on Intel's refreshed prospects should see big gains as this collaborative story plays out.
