NVIDIA Invests $5 Billion in Intel Amid Ongoing Challenges

$NVIDIA(NVDA.US) $Intel(INTC.US)

Investors Cheer NVIDIA’s $5 Billion Stake in Intel, But Key Challenges Remain

Investors may be encouraged by NVIDIA’s announcement to invest $5 billion in Intel, with the latter’s share price surging over 30% intraday on Thursday. However, many industry experts caution that this investment does little to address Intel’s most pressing issue—reviving its struggling foundry chip manufacturing business.

Crucially, the agreement makes no mention of Intel’s manufacturing arm—Intel Foundry Services. Over the past several years, this division has suffered significant losses, drawing scrutiny from both investors and the U.S. government.

Historically, Intel produced chips in-house, but since 2021, it has opened its foundry business to external clients. Then-CEO Pat Gelsinger launched the Intel Foundry Services initiative in an effort to regain market share for Intel’s product business, planning to spend hundreds of billions of dollars building new factories to manufacture chips for other companies.

However, Gelsinger’s ambitious expectations for the business have largely gone unmet due to a lack of major customer commitments. Losses at the foundry unit ballooned from $7 billion in fiscal 2023 to $13 billion in fiscal 2024. These mounting losses contributed to a 60% decline in Intel’s stock price last year, and Gelsinger was dismissed by the board in December.

New Partnership Fails to Address Intel’s Biggest Challenge

Numerous Wall Street analysts have noted that the foundry business remains Intel’s greatest vulnerability. Some advocate for divesting the unit, while others warn that such a move would erode the economies of scale that help keep Intel’s own chip production costs competitive.

CFRA analyst Angelo Zino commented, “The business is likely to continue losing money at least through 2027.”

For the past three years, Intel has poured resources into its foundry operations in an attempt to catch up with TSMC’s manufacturing technology, yet the unit continues to lose approximately $13.6 billion annually.

At Thursday’s press conference announcing the investment, both companies notably avoided commenting on whether NVIDIA products would actually be manufactured at Intel’s foundry facilities. Currently, most NVIDIA chips are produced by TSMC, and NVIDIA CEO Jensen Huang went so far as to praise the Taiwanese chipmaker during the event.

Regarding Intel’s foundry business, Huang stated that NVIDIA continues to evaluate Intel’s wafer fabrication services. However, when asked whether the new PC and data center chips produced under the partnership would benefit Intel’s foundry business, he declined to answer. He did commend Intel’s advanced chip packaging technology—a process that integrates different chip designs—and suggested that new chips may utilize this capability. Nevertheless, this is unlikely to have a significant impact on Intel’s overall foundry operations.

While the market’s enthusiasm is understandable, it remains essential to see how Intel’s foundry business performs over time and whether it can attract substantial customer commitments. For now, investors may be better served by maintaining a patient approach and closely monitoring the company’s progress, rather than making hasty investment decisions based on short-term market reactions.